JPMorgan has made an overweight call on Thai equities in anticipation of improving consumption propelled by slumping oil prices and public investment in infrastructure projects bolstering the country's economic growth to 4.2% this year.
Mowat: Oil importers will be winners
Apart from Thailand, the brokerage house is also overweight on emerging markets China, India, Indonesia, the Philippines and Turkey this year, as they are winners in the oil price slide, said Adrian Mowat, managing director and chief Asian and emerging markets equity strategist for JPMorgan Securities (Asia Pacific).
Thailand is a net oil importer.
"We forecast a 15% return for global emerging equity markets this year, and we expect Thailand to outperform its estimates," he said.
Thailand had an average return of 19% over the past five years, and robust returns are expected to continue as the country will take advantage of its geographic location at the heart of Asean and the Greater Mekong Subregion.
The government plans to push the country to be the logistics and transport hub of Asean by embarking on infrastructure projects including double-track rails and electric and high-speed trains. The rail projects will increase the country's long-term economic growth, said Mr Mowat.
"We know which government investment projects are available, and the sooner contracts can be awarded, the better for Thailand's economy and investors," he said. "Investors in Thailand would welcome a fiscal stimulus to kick-start growth."
Sectors that will benefit from public spending include building and materials, construction, and banking, said Mr Mowat.
Geopolitics remain Thailand's top risk this year, he said, and the central bank's monetary policy to cope with fund flows and currency volatility warrants monitoring.
Other risks in emerging markets include rapid changes in energy and commodity prices, deflation and slow growth in China, uncharted central bank policies, geopolitics, euro and yen depreciation against the dollar, and loss of confidence in emerging markets as an asset class.
Mr Mowat maintained his prediction the US Federal Reserve will jack up its rate this year because of the strong recovery pace of the world's largest economy.
The Thai central bank is expected to cut its policy rate by 0.25 percentage points some time this year from 2% to stimulate the economy.
Bank of Thailand governor Prasarn Trairatvorakul said Thursday even though the central bank believes the current policy rate could help with an economic recovery this year, it left the door open to a possible cut if the economy is slower than expected or unexpected effects emerge.
JPMorgan estimated the MSCI Emerging Market Index has a 13% upside gain. If policymakers have the flexibility to ease monetary policy this year it could create an upside surprise if bond yields fall.
On the contrary, JPMorgan is bearish on Brazil, Chile, Russia, Malaysia, UAE and Qatar — all net oil exporting countries — as the weak oil price will take a toll on their economies. JPMorgan also recommended an underweight stance on Australia, Singapore and Hong Kong based on small loan growth.