Asia Plus Securities (ASP) expects foreign capital to continue to flow into the Thai stock market in the medium to long term despite concerns over additional currency controls that will be announced by the Bank of Thailand on Dec 9.
In November, the central bank already implemented three measures to stimulate baht outflows in the medium to long term, such as the relaxation of regulations to boost overseas investments by Thai investors and requiring foreign traders to pre-register before investing in debentures.
To curb the strengthening baht, the central bank is preparing to introduce additional measures next week that are expected to be less restrictive.
ASP believes the central bank will announce three measures.
First is the use of international currency reserves to stabilise the currency.
Second is restrictions on the volume of foreign financial institutions' foreign exchange transactions.
Third is taxation of foreign investments, such as bond interests or capital gain on securities investment with principal, which is expected to have the biggest impact.
Since April, the baht has surged by 8.5%. It rose by 2.8% in November and is at 30.27 baht per US dollar.
Overall, ASP estimates the currency will continue to swing in the range of 30-30.5 baht. However, if the rate drops to 30 baht per US dollar, the brokerage expects the central bank will impose more stringent measures.
In November, regional markets saw the highest net buy of foreign investments in the region in 20 years, worth over US$10.8 billion.
The Stock Exchange of Thailand (SET) saw the same trend with a net buy worth $1.08 billion or 32 billion baht, the highest since 2012. The bourse has a 12% upside from its 52-week high, while most developed markets only have 2%.
The domestic market continues to lag behind Indonesia and the Philippines, which passed the resistance line in June, while the market is still short of over 50 points to reach the SET Index high at 1,455 points.
"We recommend overweighting Thai stocks by selecting large stocks with strong growth and stocks that saw the most earnings growth among industries," Paradorn Tiaranapramot, assistant vice-president at Asia Plus Securities said.
The domestic market will remain volatile due to domestic political issues, the central bank's baht controls and the Morgan Stanley Capital International weighting rebalance, said Mr Paradorn.