The Stock Exchange of Thailand (SET) index could witness a sharp correction if a technical recession occurs during the first half because of the continuing coronavirus emergency, says Kasikorn Securities (KS).
The investment outlook of Thailand's stock market is not optimistic, as the epidemic could cause the economy to contract in the first quarter, with a technical recession looming on the horizon if the downturn continues unabated into the second quarter, said KS assistant vice-president Soraphol Veerametheekul.
"If effects from Covid-19 cause second-quarter GDP to contract, a technical recession will transpire," Mr Soraphol said, using the medical jargon for the virus. "We hope this will not happen, as we expect the government to prepare new measures to stimulate economic growth over the next few months."
A technical recession is defined as two straight periods of quarterly contraction.
Although the SET index is expected to plunge in the event of a technical recession, Mr Soraphol said it's still too early to predict such a scenario and further monitoring of economic data in the first two quarters is warranted.
Thailand's economy grew at its weakest pace in five years, 2.4%, in 2019 as exports and public investment slowed.
The coronavirus epidemic is poised to deal a blow to Southeast Asia's second-largest economy this quarter. The lucrative tourism industry has begun to feel the pinch of cancelled travel plans and a ban on outbound tour groups by China's government.
Don Nakornthab, senior director of the economic and policy department at the Bank of Thailand, said recently that the economy could expand by less than 2% this year, with first-quarter growth expected to come in below 1%.
Mr Soraphol said the country's hospitality sector is the first casualty of the coronavirus outbreak, while petrochemical companies and other listed firms with exposure to the global supply chain are next in line to feel the impact.
Non-performing loans of banks will rise in the long run on sluggish economic output and lower debt-servicing ability, he said.
KS forecasts a 1% contraction in Thailand's GDP this quarter.
The virus outbreak could reduce first-quarter tourist arrivals in Thailand to 2.2 million, a 5.6% year-on-year decline, shaving GDP growth by 0.6 percentage points, according to Tisco Securities.