Analysts suggest adjusting portfolios and investing in defensive stocks such as healthcare and ICT to hedge against soaring consumer prices as inflation jumped to 7.66% in June, the highest in 14 years.
The core inflation rate stood at 2.51%, the most since March 2012, giving the average six-month inflation rate during January to June at 5.61%.
The Commerce Ministry kept its full-year core inflation forecast at 4.5%. However, the Monetary Policy Committee (MPC) is expected to accelerate the interest rate by 25 basis points at the next meeting on Aug 10 while the baht will continue to weaken.
Nattachart Mekmasin, research manager of Trinity Securities, said if the inflation rate rose above 7%, the real interest rate spread between Thailand and the US would widen.
This would cause the baht to weaken further and drive the central bank to raise interest rates by 0.25 percentage points at the next meeting, he said.
Mr Nattachart said the baht is likely to continue depreciating as Thailand's current account deficit hit a new high of US$3.7 billion. The baht has also been the weakest currency in Asia since early July.
Trinity Securities views that the report of the US consumer prices which will be released on July 13 will determine the direction of global stock markets as it will affect the Federal Reserve's interest rate decisions at the Federal Open Market Committee's meeting on July 26-27.
He said the US inflation rate is likely to continue on an uptrend in the short term and central banks over the world will continue to implement tighter monetary policies.
Coupled with concerns over the global economic slowdown, especially on the US and European sides, more money will shift from risk assets to safer assets like US long-term government bonds.
Mr Nattachart said the SET Index has been fluctuating after central banks began to implement tighter monetary policies. Currently, foreign investors account for about 50% of the Thai bourse's daily trading.
Trinity recommends focusing on defensive stocks to hedge against economic slowdown such as Bangkok Dusit Medical Services (BDMS), CP ALL, Global Power Synergy (GPSC), Ratch Group (RATCH), Wha Utilities and Power (WHAUP) and Advanced Info Service (ADVANC).
Globlex Securities research said the SET Index dipped in the afternoon trading session on Tuesday following the report of inflation as imminent rate hikes weighed on sentiment, resulting in the sale of shares to reduce risks in the short term.
Kasikorn Securities said infections from the new strains of Covid, BA.4, BA.5, are rapidly increasing and will affect the recovery of the tourism industry. However, the worsening pandemic situation will benefit hospital stocks.
The brokerage said the progress of the US-China trade talk, with the US expected to scrap some import tariffs this week, will cause US inflation to slow down and benefit both the global trade and China's economy.
The progress in trade talks will benefit some Thai stocks such as Delta Electronics (Thailand) (DELTA), JWF InfoLogistics (JWD), Banpu, Precious Shipping (PSL) and SCG Packaging (SCGP).