Thailand's stock market is expected to experience fluctuations in the fourth quarter as the escalating China-US trade row outweighs bullish sentiment surrounding next year's general election, says Asia Plus Securities (ASP).
"The trade war has widened in terms of the value of trade tariffs, especially the tit-for-tat tariffs between China and the US reaching US$250 billion [on each side], affecting global trade and putting pressure [on trade volume and foreign exchange] into next year," said Poranee Thongyen, senior executive vice-president at ASP.
Although capital markets across the globe have factored in the issue, the outcome of retaliatory tariffs is not tangible yet and should be next year, Mrs Poranee said.
An escalating trade war will have a concrete effect on a country's foreign exchange because a country experiencing trade and current account deficits will feel the pinch of currency depreciation, she said.
Such a country will have to seek financial capital for goods and services payment, with a likelihood of opting for external borrowing, thus fuelling prospects of shouldering higher external debt, Mrs Poranee said, citing Venezuela as an example of a country with weak economic fundamentals.
The Stock Exchange of Thailand (SET) index is expected to move along in a wide range of 1,620-1,733 points in the fourth quarter, with an opportunity to reach 1,790-1,848 points given a return of foreign capital, ASP said.
A lower revision of earnings for SET-listed companies is another factor pressuring upside gains on the Thai bourse, Mrs Poranee said.
ASP recently cut its listed company total net profit outlook by 2.4% to 1.1 trillion baht, with earnings per share projected at 108 baht.
"We see quite a bearish market under the assumption that the price-to-earnings ratio is at 15 times over the next 12 months," Mrs Poranee said.
She said bullish sentiment on expectations of Thailand's general election has less weight than the heightening global trade tensions.
The US Federal Reserve is expected to hike the policy rate twice more this year, with another two next year based on higher inflationary pressure in the US, she said.
The Fed is not expected to continue hiking interest rates in 2020, as trade tariffs imposed on US exports will take a toll on US private consumption and production, subsequently leading to a slowdown in the US economy, Mrs Poranee said.
ASP executive president Therdsak Thaveeteeratham said the SET index reacted positively after two key organic laws on the election of MPs and selection of senators received royal approval and were published in the Royal Gazette.
A clearer reaction from market participants is expected from Dec 11 because the electoral laws will be implemented, Mr Therdsak said.
The publication of the two laws was announced on Sept 12 after receiving royal endorsement and will take effect 90 days from publication.
Once the laws take effect in December, the constitution requires an election to be held within 150 days. This means that the general election could occur in late February at the soonest or early May at the latest.