Thailand's stock market is expected to move sideways this quarter, supported by expectations of another 25-basis-point rate cut by the Bank of Thailand's Monetary Policy Committee (MPC) and a recovery in the earnings of SET-listed companies, says Asia Plus Securities (ASP).
Head of research Therdsak Taweethiratham said movement in the Stock Exchange of Thailand (SET) index in the final quarter will hinge mainly on domestic factors, especially interest rates.
The firm expects the MPC to make another rate cut after August's surprise monetary policy easing.
Such a move would widen the earnings yield gap between the one-year government bond's yield and the SET's return, inducing more investment appetite in the stock market, Mr Therdsak said.
The gap currently stands at 4.68%, higher than the average earnings yield gap of 4.28% from 2008 to 2019, according to ASP.
"The widening gap makes risky asset classes, such as stocks, become more attractive and possibly induces inflows into the equity market," Mr Therdsak said.
Based on the average earnings yield gap of 4.28%, the stock market's price-to-earnings (P/E) ratio is 17.6. A higher earnings yield gap will result in a cheaper P/E ratio of 16.4.
Under this assumption in which the P/E ratio is at 16.4, the SET index is projected at 1,655.53 by year-end, with earnings per share expected at 100.64 baht, according to ASP.
The stock market's movement in the fourth quarter is expected to find support from the third-quarter earnings of SET-listed companies, with combined net profit anticipated at 250 billion baht, Mr Therdsak said.
For October, the stock market's movement depends on domestic factors such as delays in fiscal 2020 budget disbursement and a possible upgrade to Thailand's sovereign credit rating by international credit rating agencies, he said.
External factors affecting the movement of fund flows include Brexit, the Sino-US trade dispute and political developments in Europe and the US.
For Kasikorn Securities (KS), the Sino-US trade dispute is the main factor directing investment sentiment in the stock market.
Brexit is expected to have a limited impact on Thailand's economy, as there were about 1 million British tourists visiting Thailand in 2018, accounting for 2% of total foreign tourist arrivals, according to KS.
But a scenario involving a hard-landing Brexit is expected to take a toll on some SET-listed companies, especially those operating in the food, electronics, energy and hospitality sectors, said head of research Passakorn Linmaneechote.
The MPC is expected to stand pat on the 1.50% policy interest rate for the rest of the year, but a rate cut could happen in 2020, he said.
