Maybank Kim Eng (MBKE) Securities Thailand has revised down its SET Index forecast for the second half, expecting foreign capital inflows to recede in the period due to a narrower interest rate margin and unattractive earnings per share (EPS) growth of listed companies.
It now projects the Stock Exchange of Thailand index to end the year at 1,600 points instead of 1,650. The new forecast is based on assumptions of EPS growing around 6% and dividend yield around 3%, said MBKE assistant managing director Sukit Udomsirikul.
"The stock market is expected to move sideways in the second half. I do not think foreign inflows will come in whenever large market-cap stocks [which have enough liquidity to qualify for foreign investment criteria], such as banking is facing a non-performing loan problem," he said.
"Telecom stocks are [also] hard to predict as the competitive structure has switched to marketing expenses to gain market share."
Operating result of listed companies is expected to grow only 6% and the baht, which tends to depreciate in the second half, will be another factor dragging on foreign inflows, said Mr Sukit.
He said market expectations, which are for the US Federal Reserve to further increase interest rates, will narrow the gap between foreign interest rates and the Thai rate, making Thai bonds lose some of their attractiveness among foreign investors.
"The Thai bourse also faces some dilution risk over the year, at least from now on, because we see that many listed companies have increased capital or paid no dividends this year, while raising funds for financial restructuring," said Mr Sukit.
He said the reason listed companies have used more capital market-financing tools during this period is because the cost of funding for debt instruments, such as bills of exchange and bonds, is picking up.
"Hence, dilution risk has the potential to occur for listed companies in the next one to two years from now on," said Mr Sukit.
Normally, capital calls may be a sign of private investment picking up, but now they are likely to be in the form of loan repayments or financial restructuring to lower debt to prepare for a rate hike, he said.
Financial markets are now monitoring the Fed's monetary policy, including a shrinkage in the central bank's balance sheet and its new governor who might be from the private sector, he added.