Thai stock investors urged to be careful

As the Thai stock market has recovered rapidly over the past month in light of the improving economic picture, there are still some risk factors for shares in 2023 that investors should be aware of, analysts warn.

According to TISCO Economic Strategy Unit (TISCO ESU), positive factors that have boosted global stock prices over the past month include a resolution of the energy crisis in Europe, China's easing of Covid-19 restrictions, and a deceleration of the inflation rate, especially in the US. The positive trio has led the market to believe the US Federal Reserve will soon stop raising interest rates, and has eased investors' concerns over the risk of a recession this year.

But Komsorn Prakobphol, head of TISCO ESU, pointed out that the stock price rally over the past month reflected a much better economic outlook, and share valuations have risen to a high level. As a result, the Thai market is seen as having limited upside gains at the moment.

As liquidity tends to decline, there is an important risk factor that would put pressure on equity investments in the future. Therefore, investors should be careful and wait for the right moment to invest in stocks and bonds when prices are at an appropriate level, he noted.

In addition, liquidity, which has played a role in boosting the market in recent times, is likely to decline in the future as the Fed is likely to further shrink its balance sheet throughout the year. This will reduce global liquidity by about US$1 trillion.

CME Group's FedWatch Tool expects the Fed to raise interest rates by 0.25% to a range of 4.50-4.75% at its meeting this week. US headline inflation, which includes food and energy, rose by 5% year-on-year in December and slowed from 5.5% year-on-year in November, reducing pressure to raise interest rates to stem inflation.

Meanwhile, the European Central Bank (ECB) has started to reduce the size of its balance sheet by recalling low-interest loans given to commercial banks during 2014-2019, and is expected to start the process of reducing asset holdings in the second quarter of 2023.

The Bank of Japan is considering an extension or cancelling the yield curve control, also in the second quarter, so reducing the need for intervention in the bond market. And finally, if Congress agrees to raise the debt ceiling, the US will issue a large number of new bonds to offset the drop in the reserve fund. This would pull liquidity out of the system in another way, he said.

Globlex Securities (GBS) pointed out that the Thai stock market would continue to fluctuate this week, as it waits for the financial results of listed firms in 2022 while the next general election is on the horizon.

GBS recommends investors opt for stocks that are set to benefit from the election, including T K S Technologies, Sansiri, Praram 9 Hospital, SC Asset Corporation, and Sino-Thai Engineering and Construction.