The Thai stock market will continue to be challenged by the pandemic in the third quarter as economic growth remains dampened by the outbreak, while improving economies outside Thailand may depreciate the baht and cause foreign outflows, says Asia Plus Securities (ASPS).
Therdsak Thaveeteeratham, an executive vice-president at ASPS, said sentiment in the Thai bourse for the third quarter would not be as bright as the first quarter.
The earnings forecast for Thai listed companies should be downgraded as strict control measures will continue for a few months, he said.
ASPS estimated the outbreak of the Delta variant of Covid-19 to peak in the third week of July, or about 55 days after it was found, while the infection rate is expected to decline in about mid-September. The forecast is based on statistics from India.
"Thai GDP in the second and third quarters is likely to contract for both a quarter-on-quarter and year-on-year basis, before a rebound in the fourth quarter," Mr Therdsak said.
ASPS forecast GDP growth of 1.7% this year, spurred by exports, which the Bank of Thailand expects to increase by 17%, leading to an economic recovery.
Many developed economies have shown signs of recovery and the markets anticipate quantitative easing will be tapered around August, said ASPS.
Any tapering will pressure the Thai stock market, making it more volatile during the period, he said.
This will likely cause foreign capital outflows because the US dollar is expected to strengthen while the baht weakens, said Mr Therdsak.
Many foreign investors will sell to avoid the impact of the local currency depreciation, he said.
ASPS maintains its SET Index target of 1,670 points, but the SET could drop by 50-60 points if it misses 1,582 points, which is the momentum changing line, said Mr Therdsak.
"Investors should use a selective buy strategy for Thai shares and reserve about 20% of cash in their local stock investments, collecting good stocks when the SET Index reaches 1,510, which is its support level," he said.
Mr Therdsak suggested selecting stocks that will benefit from rises in the interest rate and bond yields, such as insurance, earnings stocks, some retail stocks, and equities related to the country reopening.
Another allocation proposal is foreign assets.
