The Stock Exchange of Thailand index broke through the 1,400-point barrier on the last trading day of the year, closing up 35.75% for 2012 and making it the world's fifth best-performing bourse in that period.
The index reached 1,402.86 points yesterday, but SET president Charamporn Jotikasthira said the market was extended past its full value.
At the close of the trading session, the SET index stood at 1,391.93 points, down 5.26 points or 0.4% in trading worth 34.6 billion baht, a record high for the past 16 years.
Mr Charamporn said the Thai stock market rose sharply in the fourth quarter as a result of huge foreign capital inflows to Asian markets such as Thailand, with high potential for continued strong returns throughout next year.
This year, foreign investors fled developed markets in the US and Europe as those regions struggled to find solutions to financial problems.
The US is still seeking a way to avoid its "fiscal cliff" after Monday, while euro-zone countries such as Greece and Spain continue to endure a severe debt crisis.
Investors have thus shifted investment to chase higher returns in Thailand and other healthy Asian economies.
But the inflow has pushed several stocks' price-to-equity (P/E) ratios up drastically.
While the SET's P/E stands at 18.27, on a par with other markets in the region, investors should be aware of market corrections, especially with the huge movement of fund flows.
Market capitalisation in 2012 totalled 11.9 trillion baht, up from 8.41 trillion last year.
Mr Charamporn said many stocks have a P/E ratio higher than 40, which could translate to earnings growth of at least 30-40%, so investors should analyse each company to see whether it can achieve such growth.
"The SET index in the early part of the year stood at 1,036 points before rising along with the earnings growth of listed firms," he said.
"It is time for investors to evaluate cautiously the real value of stocks and their ability to grow."
Terdsak Taweethiratham, Asia Plus Securities' research manager, said the SET index rally will continue into 2013, but the next week will see selling by long-term equity funds (LTFs).
Wiwat Techapoonpol, the head of investment strategy at Tisco Securities, said the SET index's drop in the afternoon session came as some funds moved to sell assets out of concern for the unresolved US fiscal cliff.
He said the SET index should rise to 1,410 points in the first week of 2013 with support at 1,380, and he agrees that LTFs will see tremendous selling pressure during January.
PTT Exploration and Production marked the biggest fund-raising deal of the year, valued at 92.3 billion baht, followed by Krung Thai Bank at 35.2 billion.
Listed state enterprises and subsidiaries raised as much as 128 billion baht, representing 49% of total market value.
The SET's daily trading averaged 31.1 billion baht this year, up by 8% and setting an all-time record, while mean P/E was 15.88.
Foreign investors were net buyers of 76.4 billion baht, while retail investors were net sellers of 59.3 billion.
Local institutional investors were net sellers of 24.3 billion baht.
The MAI recorded a return of 57.4%, with daily trading value at a record 1.22 billion baht, up by 96.7%.
Average P/E ratio stood at 19.36.
Thailand Futures Exchange trading averaged 43,823 contracts per day, up by 6.5% from last year.
The most popular financial tool for 2012 was stock dividends, followed by warrants and employee stock option warrants.