Asia Plus Securities (ASP) expects 15-20 billion baht worth of foreign funds to flow into the Thai stock market for the rest of the year, with their total for 2018 rising to 100 billion baht thanks to the economic recovery.
The brokerage predicts the SET index will reach 1,700 points this year and 1,766 in 2018.
Poranee Thongyen, ASP executive vice-president, said foreign fund flow into the Thai stock market has been positive for over two months. For the year to date, investors have bought a net 12 billion baht in the market, a far cry from the 110-billion-baht net buy position in 2004, she said.
While Thailand's economic outlook for next year is positive, the market is still a laggard in the region, with a price-to-earnings (P/E) ratio of 15-16 times. The ratio suggests funds will continue to flow into the market to reach about 100 billion baht next year, said Ms Poranee.
Investment for the final quarter of 2017 remains positive, which makes it likely the SET index will reach 1,700 points this year and 1,766 in 2018, she said.
Ms Poranee said the global recovery has been especially rapid in developed markets such as the US, where interest rates rose twice in 2017 and the government is preparing to halve its balance sheet from a total of $4.2 trillion.
Europe's economy also has seen some improvement, but some countries are still suffering from high public debt. There is also a chance that some will follow Britain's lead and leave the EU.
Emerging markets, for their part, are growing quicker than forecast by the IMF.
Ms Poranee expects Thailand's economy to grow 3.5% in 2017 and 4% in 2018, driven by strong exports, government spending and private sector investments. According to the Board of Investment (BoI), businesses applied for around 300 billion baht in investment support in the second quarter of the year, up from 60 billion of the first quarter.
Some 60% of total investment channelled through BoI has been directed to the 10 S-curve and new industries picked to receive government support. The Eastern Economic Corridor has been approved by the cabinet, which would lead to an increase in real estate investment around the area, as well as machine imports.
Listed firms in the first half of 2017 posted combined earnings of 513 billion baht, 51% of the total 990 billion projected for the year, up 7.1% from last year.
ASP expects net profits for many sectors to improve in the second half thanks to the acceleration in economic growth, Ms Poranee said.
For 2018, ASP expects listed firms to earn 1.07 trillion baht (up 8.9%), and for P/E ratios to decrease from 16.4 to 15 times, which will be fundamental in attracting foreign funds.
The proportion of Thai stocks held by foreign entities is at its lowest in 14 years. As of August 2017, foreign entities hold 24.2% of the Thai stock market and 6.78% of non-voting depository receipts, to total 30.9%, down from 36.9% in 2012, when foreign ownership peaked.
Foreign investors bought a cumulative 470 billion baht from 2009 to 2013, then sold off most of those securities by the end of 2015.
"Foreign investors are in an under-owned position on the SET, so there is plenty of room for fund inflow in the next several years," she said.
ASP recommends investors put 60% of their investment into the Thai stock market, 10% more than its typical 50% weighting.
In the final quarter of 2017, the brokerage house recommends stocks in the agricultural, building materials, transportation, electronic parts, banking and retail industries.
In the domestic market, investors should look at sectors that will benefit from state investment projects like industrial estate, and those that will capitalise on the global recovery like energy and exports.