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Baht/$ 33.39/42
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GOLD |
14,950
- 200
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Market swoons with no end in sight
DARANA CHUDASRI
Risk premiums for the Thai market are at their highest levels in a year, as global investors continue to reshuffle their portfolio holdings in light of external and domestic factors, according to local analysts.
Risk premiums were at their highest levels since 2007, as valuations have fallen due to global market uncertainties, said Pichai Lertsupongkit, an executive vice-president at Thanachart Securities and director of the Securities Analysis Association (SAA).
''Global markets are adjusting sharply as investors remained worried about the lingering effect of the US sub-prime crisis,'' he said.
''Investors are holding more cash or demanding higher rates of return from equities because of higher risks.''
The Stock Exchange of Thailand index has fallen by 20% since the beginning of the year, thanks largely to heavy foreign sales as a result of global market volatility, rising inflation and domestic political uncertainties.
Mr Pichai said risk premiums, measured by taking the difference between earnings yields and one-year bond yields, now stood at 4.8%, well above the 3.23% rate a year ago.
Returns on investment for bonds have risen by over a percentage point over the past several months, from 2.85% in March to 4.02% in July, reflecting market expectations of higher inflation and interest rates.
But the risk premium for equities has risen even faster, from 2.87% in March to 4.8% as of last week, Mr Pichai said.
''Returns on investment in risk-free instruments are continuing to adjust upwards, reflecting volatility in the world market,'' he said.
''Required rates of return on risky assets worldwide are being pushed upwards in the same way.''
The SAA, which represents local analysts, is expected to announce a new consensus outlook next month, with downward revisions projected for all categories.
Economic growth for this year is expected to be cut to a forecast of 4.7%, down from 6% actual growth in the first quarter as inflation and shrinking domestic consumption affect corporate earnings.
The SAA in May projected listed company profits this year at 521.28 billion baht. But projections were cut to 516.1 billion baht as of July 14, and could be cut even further if inflation continues to rise and economic activity slows.
Mr Pichai said the latest inflation figures suggested that producers were finding difficulty in passing costs on to end-users, resulting in tighter profit margins.
The consumer price index in June rose 8.9% from last year, while the producer price index gained 8.6%.
Mr Pichai said with lower profit growth and falling prices, it was natural that investors would demand higher risk premiums for equities relative to fixed-income instruments.
For 2009, prospects could even become worse, as oil prices and the overall economy show little signs of improvement.
Mr Pichai said investors should focus on selected sectors such as energy and health care, and consider the potential upside gain against current market volatility.
''Some energy stocks, such as PTT Exploration and Production, have fallen by 30% in less than two months. Market prices for some blue-chip stocks now are less than fair value,'' he said.
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