Investor worries over domestic political protests pulled down the benchmark SET index by 2.02%, closing at 1,208.75 points on Monday in trade worth 54.01 billion baht.
The sell-off was led by foreign investors, as analysts urged investors to diversify their portfolios with foreign stocks.
The biggest plunge on Monday was Airports of Thailand, down 4.46% to 58.50 baht, followed by Kasikornbank, down 3.41% to 70.75 baht. CP ALL was quite active, but closed unchanged at 58.50 baht.
Terdsak Thaveeteeratham, head of research at Asia Plus Securities (ASP), suggested Thai investors hold cash of up to 35% of the portfolio to avoid the short-term impact of market fluctuation caused by political uncertainties.
The advice is a reversal from the company's previous call to increase investment weight in medium- and small-capitalisation shares while reducing shares in large caps.
"It is hard to predict which direction the political protest will take," he said.
"We advise investors to sell shares to reduce their risk."
Mr Terdsak said the cancellation of short selling and the zero plus tick rule, starting this month, has contributed to increased momentum to the bourse's price movement.
"Short-sale transactions, after the two temporary rules were lifted, climbed to more than 2 billion baht from less than 700 million during the period when the two rules were temporarily implemented," he said.
"For those looking for an opportunity to buy, we suggest not to rush in as the situation has high uncertainty."
TIME TO BUY FOREIGN
Padorn Suksawad, head of investment advisory at ASP, suggested diversifying portfolios toward foreign stocks, focusing on thematic investment in shares/companies related to future trends such as technology.
"We suggest increasing investment weight in foreign assets in the short term," Mr Padorn said.
"China is an interesting choice for two reasons -- it is showing a fast recovery from the pandemic, and the country is successfully migrating from an old economy to a new one, making it both a thematic investment and portfolio diversification."
He said the US market may have high volatility throughout its national election period.
"In the long term, I suggest to position domestic and foreign allocation at a 50:50 ratio," said Mr Padorn.
The suggestion for investors new to foreign investment is to start by investing 20-35% of their portfolio in foreign equities.
Foreign investment diversification can also reduce risk if the baht weakens.
Koraphat Vorachet, senior vice-president at Capital Nomura Securities, suggested allocating Thai shares at only 20-25% of total investment assets.
He said investors should gradually increase weight in Thai shares once the SET index moves in a range of 1,080 to 1,200 points.
The recommendation is based on a price-equity ratio of 14 times and a time frame when investors are no longer significantly worried about the state of domestic politics.
After the US election, Mr Koraphat suggested increasing the proportion of high-risk assets to more than 50%, as high-risk assets should provide performance returns over the next 7-10 years.
Boontham Rajitpinyolert, investment adviser at Yamagata Thailand, suggested portfolio allocation of 25% Thai shares, 40% foreign shares, and 20% in gold.
RIPPLE EFFECTS
Urban transport stocks were affected as the government announced a shutdown of multiple BTS and MRT stations over the weekend, causing share prices of BTS Group Holdings to drop 3.74% to close at 9 baht in trade worth 97.99 million.
Prices of Bangkok Expressway and Metro (BEM) fell 4.12%, with trading worth 71.73 million baht.
Stocks related to technology had some movement, such as Advanced Info Services (ADVANC), which rose slightly during the day to close unchanged at 173.50 baht, and InTouch Holdings (INTUCH), which was down by 0.48% to close at 52 baht.
Nattachart Mekmasin, research manager of Trinity Securities, said the Thai stock market has been affected by the escalating political situation, and investors have sold shares, expecting protests to intensify.
He said the situation will likely not be resolved in the near term as both the protesters and the government have not began a dialogue.
The government may have a difficult time controlling the protests and break up assembly because the organisation of protests is decentralised, often done over chat platforms. Sometimes gatherings take place at more than one location.
Ongoing protests could drive market volatility as the main demand of protesters (for the prime minister to resign) will likely not be met, said Mr Nattachart.
"Investors dislike events that are prolonged and unpredictable," he said.
The primary stock categories impacted by the protests are mass transport, department stores, construction, industrial estates and tourism.
Resolving protest demands with constitutional amendments may take a long time, or may never happen, risking dragging out the conflict, said Mr Nattachart.
"Investors should wait and see how the situation evolves, as protesters' other demand of reforming the monarchy is a very sensitive issue," he said.
Trinity suggested avoiding stocks involved with the protest, instead considering investment in products with global demand such as electronics, automotive and food exports.
Sorrabhol Virameteekul, senior vice-president of Kasikorn Securities, said the domestic political situation is difficult to predict as the protesters' demands require much change.
"We suggest investors wait and see regarding the domestic political situation and follow external factors such as the US election on Nov 3. If Joe Biden wins the election, it will have a positive economic effect on China and nearby emerging markets," he said.
The SET index will move narrowly sideways at 1,195-1,205 points on Tuesday and Wednesday, said Mr Sorrabhol.
For the worst-case scenario (an escalation of violence by the government or protesters), the SET index is predicted to drop to 1,140 points, he said.
