The Securities Analysts Association (SAA) expects the SET index to reach a high of 1,704 points this year, propelled by the government's 2 trillion baht worth of planned infrastructure spending, listed companies' strong earnings growth and continuing capital inflows.
However, the consensus among SAA analysts is that investors should reduce their asset allocations in Thai equities and raise investment abroad and in bonds.
Secretary-general Sombat Narawutthichai said the SAA revised up this year's listed companies' earnings growth forecast to 20.3% from 15% projected last December.
"Government spending and private investment will be major factors driving the capital market over the next two years," he said.
The construction and building materials sector is expected to show the highest earnings growth at 37%, with dividends of 3.66% this year.
As well, the sector will remain the top performer next year, with 20.9% earnings growth.
Other potential top performing sectors this year in terms of earnings growth are property (33.4%), banking (24.8%), telecommunications (20.4%), energy (12.4%) and electronic parts (11.1%).
However, high price-to-earnings (P/E) ratio in Thai shares, the continuing euro-zone debt crisis and domestic political uncertainty remain risk factors.
Mr Sombat said the Thai stock market's P/E at year-end is projected at 14.5 times, based on an SET index of 1,550 points and earnings growth of 20%.
However, if the SET index does hit 1,704 points, then the P/E ratio will come in at 16 times.
The consensus among SAA analysts is that investors should cut investment weighting on Thai equities to 40% from 45% and gold to 10% from 11%.
They should increase foreign investment to 12% from 11%, fixed income to 22% from 17% and cash to 15% from 13%, said the analysts.
The SAA expects the gold price to fall to 24,334 baht per baht-weight this year.