There are signs of a bubble forming in the Thai stock market due to the impact of the global economic crisis and the third round of quantitative easing measures implemented by the US Federal Reserve, a senior economist said on Friday.
Usara Wilaipitch, senior economist at Standard Chartered Bank in Bangkok, said the QE3 package, global economic recession and the eurozone debt crisis had caused foreign direct investment (FDI) to flow into capital markets in the Asian region, including Thailand.
The FDI inflow had substantially pushed up prices of shares on the Stock Exchange of Thailand (SET), without strong fundamental support, she said.
This were signs a possible bubble situation could occur in the Thai stock market. If share prices continue to rise over the next few months, it would be a danger signal for investors, Ms Usara said.
She predicted there would be more fluctuation in the value of baht over the next few months due to more foreign investment inflow.
The easing measures by the Bank of Thailand, aiming at facilitating investment outflow, would have substantial effect on the baht value in the long-term, she added.
The senior economist projected that such a situation would prompt the central bank’s monetary policy committee to cut the repurchase rate by 0.25% in November. The key policy rate is likely to be cut by another 0.25% early next year.
“Risk factor on Thai economy is the ongoing impact of financial problems in Europe that slowed down exports. Therefore, the government must speed up its investment in various development projects to further mobilise the economy,” she said.
Suchada Kirakul, an economic advisor to the central bank, said on Friday that the bank’s internal monthly meeting on macroeconomic policy had also discussed the issue of a possible bubble in the property sector.
However, the meeting agreed there was no unusual signs indicating a bubble at this time. Most of purchases of real estate were for residential use, not for profit making, she said.
The increase in number of property development projects, their unit prices and housing loans were partly boosted by the low interest rate environment, Mrs Suchada said.
The government’s policy to raise people’s income had also increased their purchasing power. In addition, last year’s great flood had also spurred demand for residences, particularly condominium units, she added.