Thai stock market’s valuation vaults to record in pandemic

Thai stock market’s valuation vaults to record in pandemic

Koh Kret in Nonthaburi province reopens for tourists on May 10, 2020. Tourism is at the heart of the Covid-19 shock. (Photo by Arnun Chonmahatrakool)
Koh Kret in Nonthaburi province reopens for tourists on May 10, 2020. Tourism is at the heart of the Covid-19 shock. (Photo by Arnun Chonmahatrakool)

Thailand’s bear-market stock rally may stall after a series of earnings estimate downgrades helped push valuations to their most-expensive on record.

The benchmark SET Index trades at about 17.7 times its 12-month consensus profit forecast, a record high, according to Bloomberg data dating back to 2005. The pricey multiple comes after analysts slashed earnings estimates on  companies by 27% since the end of last year, putting them at the lowest levels since 2010. Meanwhile, equity index surged 30% from a March low -- but is still down 16% this year.

“Current valuations are unjustifiable given Thailand’s steep economic contraction,” said Apichat Poobunjirdkul, a senior strategist at Tisco Securities. “Earnings downgrades will put a damper on any further gains.”

Southeast Asia’s second-biggest economy is forecast to suffer its worst recession in more than two decades as the coronavirus pandemic prompts the shutdown of its borders. Although the gradual re-opening of businesses and services has fuelled some optimism, the state of emergency remains in place, and officials are mulling extending it through June 30.

Analysts’ earnings estimate cuts have accelerated this month after companies reported disappointing first-quarter results. Aggregate earnings of 552 listed companies in the first quarter slid 58% from a year earlier, with energy and petrochemical companies leading the decline, according to Tisco Securities.

“Thailand has long-term growth potential, but the stock market is predominantly made up of old-economy stocks,” said Alan Richardson, a fund manager at Samsung Asset Management in Hong Kong. “Most don’t benefit from the coronavirus, unlike counterparts elsewhere with large representations of technology stocks that benefit from work-from-home activity and stay-at-home entertainment.”

International investors have pulled a net US$5.9 billion from the equity market this year, according to Bloomberg data. Meanwhile, foreign tourist arrivals are forecast to tumble 60% this year, according to the Tourism Authority of Thailand.

“Foreigners are selling out of all emerging-market stocks out of panic and worries about post-Covid aftershocks,” said Nader Naeimi, the head of dynamic markets at AMP Capital Investors in Sydney. “Thailand is very very tourism-dependent, and tourism has been at the heart of the Covid shock.”

One bright spot may be the baht, which has strengthened 1.6% against the US dollar this month, the best performer in Asia in the period, according to data compiled by Bloomberg. Still, the currency dropped more than 7% in the first four months of this year.


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