Thailand's benchmark stock index, the best performer among Asia's major equity markets in 2012, will gain at less than half last year's pace as corporate earnings growth slows, according to BBL Asset Management Co.
Stocks will offer returns close to companies average earnings growth of 15% in 2013, said Voravan Tarapoom, chief executive officer at the fund, which oversees about $7.5 billion of assets. The firm manages the BBL Bualuang Top-Ten Fund (BTP), which rallied 76% last year, making it the best performer among 196 equity funds based in Thailand, according to data compiled by Bloomberg.
Investors should expect much lower returns from Thai equities this year to reflect companies earnings, Voravan said, declining to give a specific forecast for the index. The market will remain volatile because of concern that global economic growth may falter and the excessive valuations for some stocks, she said.
The SET Index gained 36% in 2012, the most among Asia's benchmark indexes after Pakistan. The government spent about 283 billion baht ($9.3 billion) buying rice from farmers at above-market rates and offered at least 91 billion baht in tax rebates for new car purchases to boost growth after floods in 2011 cost the economy an estimated 1.4 trillion baht.
The Thai economy may expand about 5% this year from an estimated 5.7% in 2012, the finance ministry said on Dec 26. Local stocks may extend gains on public spending and a recovery in exports, Sopawadee Lertmanaschai, secretary-general of the Government Pension Fund, which manages 572 billion baht of assets, said in an e-mailed statement.
Asia Crisis
The SET Index continued to rise in the second trading day of 2013 by 0.07% on Thursday to 1,408.41, the highest close since Feb. 7, 1996, the year before Thailand's decision to devalue the baht plunged the economy into its worst ever crisis and sparked turmoil throughout Asia.
"Valuation is our major concern,'' said Daniel Fineman, Credit Suisse Group AG's Thailand research head. "We believe that the market deserves its re-rating on improved politics, but do not consider current multiples sustainable for some stocks.''
The SET Index was valued at 15.6 times estimated earnings on Wednesday, the highest level since December 2007, according to data compiled by Bloomberg. That compared with a multiple of 12.4 times for the MSCI Emerging Markets Index (MXEF) and 13.4 times for the MSCI Asia-Pacific Excluding Japan (MXAPJ) Index.
Credit Suisse expects the SET Index to reach 1,470 in 2013. That would be a 5.6% advance from the end of 2012. Economic growth may slow this year as the end of flood reconstruction curbs investment and the expiration of tax incentives cuts vehicle sales, according to Fineman.
Banks, Tourism
BBL Asset's Voravan favours utilities, food producers, banks and transportation companies whose earnings will benefit from increased domestic consumption and tourism. Shares of companies that rely on exports may suffer as the global economy struggles to recover, she said on Wednesday by e-mail.
An index of Thai contractors and property developers was the biggest gainer among 27 industry groups in the benchmark index, surging 79% in 2012. Any delay in government flood-prevention projects may curb gains for contractors and cement producers in 2013, according to Credit Suisse's Fineman. His top picks are banks, property and health-care companies.
Sino-Thai Engineering & Construction Pcl (STEC), the nations biggest construction company by market value, rallied 122% in 2012. Ch. Karnchang Pcl (CK), the No. 2 contractor, jumped 77%. Siam Cement Pcl (SCC), the largest cement maker, climbed 41% and Siam City Cement Pcl (SCCC) advanced 63%.
Flood Spending
Overseas investors bought a net 76.4 billion baht of Thai shares in 2012, after an outflow of 5.1 billion baht in 2011. Prime Minister Yingluck Shinawatra has pledged to spend more than 2 trillion baht to construct roads, bridges and drainage systems over the next seven years to boost growth and protect the country from the effects of floods.
BBL Assets estimate for 2013 earnings growth is higher than the market consensus. Earnings per share for the 497 companies in the SET Index are expected to rise 9.1% in 2013, slowing from an estimate of 39% growth in 2012, according to data compiled by Bloomberg.
Trading turnover on the Stock Exchange of Thailand averaged 31 billion baht a day in 2012, a 7.3% increase from 28.9 billion baht a year earlier, according to data compiled by Bloomberg.