Asian equities could benefit from a return of foreign fund inflows, but the stock market remains volatile depending on the economic recovery and the pandemic situation, says Principal Asset Management.
Chief investment officer Win Promphaet said foreign capital inflows will return through exchange-traded funds (ETFs) investing in Chinese and other Asian equities.
Foreign inflows were a factor driving up China's stock market during the past few months, Mr Win said.
The US stock market also surged drastically after a series of monetary stimulus measures by the Federal Reserve, he said.
"For Thai shares, the stock market's price-to-earnings (P/E) ratio is rising pretty fast, as the country has had no new Covid-19 infections internally for more than one month," Mr Win said.
The P/E ratio of the Stock Exchange of Thailand (SET) index currently stands at 19.5 times, up from 13 in March, when the bourse fell to 969.08 points during an equity sell-off spree sparked by coronavirus fears.
Foreign investors have been net sellers of Thai equities during the first five months, with year-to-date foreign outflows totalling 219.2 billion baht as of July 3.
The stock market may experience recurring financial volatility from factors related to external Covid-19 cases, and the travel industry could take 2-3 years to fully recover, Mr Win said.
The SET index could reach 1,500 points given a fast economic recovery for Thailand, but the main stock gauge could plunge to 1,200 points in the event of a tepid economic recovery, a second wave of coronavirus or nagging unemployment.
SET-listed companies operating in the utility, food and healthcare sectors are identified as having a defensive characteristic against looming uncertainties, while banking equities are the least attractive sector because of growing bad-loan prospects.
Principal Asset Management has also launched Principal Global Education Tech, a feeder fund that invests in education technology (edtech) through the Credit Suisse (Lux) Edutainment Equity Fund.
The edtech industry has high growth potential because it represents 2-3% of a global education industry whose total market value is roughly US$5 trillion, Mr Win said.