The stock market's bull run could be fleeting, with a sharp correction possible if there is no clarity on the general election timeline in the third quarter, says the Federation of Thai Capital Market Organizations (Fetco).
Voravan: Election will boost confidence
Institutional investors are keeping a close watch on whether Thailand's general election timeline will materialise in the third quarter, said Fetco chairwoman Voravan Tarapoom.
Thailand is scheduled to hold a general election in November 2018, with an announcement on the election date expected to be unveiled in June, according to Prime Minister Prayut Chan-o-cha.
This is the most specific the premier has been about an election date since taking power in a 2014 military coup.
"Institutional investors usually assess [the market outlook] based on confidence," Mrs Voravan said. "If the election takes place, this would be a boon for investor sentiment. But if it does not occur, this could cause a sharp correction in the Thai bourse in the third quarter because investor sentiment would be derailed in the short run."
Sukit Udomsirikul, managing director at Maybank Kim Eng Securities Thailand, said the stock market's outlook depends largely on domestic political developments and Thailand's economic fundamentals.
The bourse's bull run will continue if domestic politics does not encounter turbulence, but if economic conditions turn sour and political conflicts flare up, this would take a toll on the stock market, Mr Sukit said.
"[Investment sentiment] would stall if the election takes place on a different timeline, but a major issue would occur if there is no election," he said.
Meanwhile, Fetco's investor confidence index (ICI) for the next three months (January-March) stands at 153.94, staying within the ICI's bullish range of 120-160 and rising from the previous month's level of 150.81.
The ICI has risen as foreign investors remain very bullish and proprietary traders have moved into very bullish territory.
Banking is the most attractive sector for investors, while media and publishing draw the least interest.
"Key factors driving confidence include continuing growth of the domestic economy and the US tax policy reform, which will be implemented in 2018 and should stimulate the US economy," said SET senior executive vice-president Santi Kiranand.
"Nevertheless, the risks of conflict in the Middle East and the Korean Peninsula, though minimal, still have a major negative impact on investor confidence," Mr Santi said.
The election date announcement, continuous quantitative easing measures and the low-interest-rate environment will help attract capital to the Thai stock market and lend support for a positive outlook this year, said Prakit Sirivattanaket, vice-president of Kasikorn Securities.
KS forecasts the Stock Exchange of Thailand index to stand at 1,835 points this year, but if the above key factors are taken into account then the bourse could rise to 1,976 points.
The 1,835-point target is based on a forward price-to-earnings ratio of 16.4.
"Even if the bourse has a high valuation target, Thailand's economic growth is expected to expand from last year," Mr Prakit said. "With greater political stability, foreign investors will return to invest in the Thai stock market."