Asco: Easy money bull runs to end soon
Liquidity-driven stock market rallies are coming to an end following the tapering of rapid fire money printing at most major central banks, warns the Association of Securities Companies.
"We've been in the quantitative easing [QE] era since 2008 with money flooding stock markets across the globe, but the magnitude of cash pumping is gradually being scaled back and the liquidity surplus era is ending. We should no longer expect offshore fund flows to drive stock markets," said Pattera Dilokrungthirapop, the association's chairwoman.
The US Federal Reserve is leading its major counterparts in winding down QE and lifting its policy rate, while money pumping by other central banks is falling, said Mrs Pattera.
Even though the US interest rate hike has yet to take a toll on the Thai rate because of excess liquidity, hope that offshore funds will prop up stock markets globally as in the past is dimming as global liquidity dries up, she said.
Excess liquidity in global financial markets has resulted in record highs for a number of bourses around the world. Even though the benchmark Stock Exchange of Thailand index has not recorded a new low since the 2008 financial crisis, it has more than doubled from 784.24 points in January 2008.
"Stocks with high price-to-earnings ratios [PE] are always sensitive to news, so investors need to return their focus to the fundamentals of the stock market and of individual stocks," said Mrs Pattera.
Given that the SET has high PE, its earnings per share (EPS) growth will be lower than that of neighbouring countries' bourses, she said.
The Thai stock market does not have problems over the long run, thanks to the country's solid economic fundamentals, the government's economic stimulus, and projects to upgrade and reform Thailand in many sectors, said Mrs Pattera. But the short run could be volatile, she cautioned.
"Investors need to do a lot of homework. They cannot merely track overseas stock market movements as money moves in and out swiftly, making trading based on fund flows quite difficult," said Mrs Pattera.
She recommends investors pile up shares that benefit from the government's investment projects and stimulus, including banks that will benefit from rising interest rates.
In related news, Mrs Pattera said investors can analyse small and mid-cap stocks not covered by brokerage firms by using stock apps developed by fintech firms.