Aberdeen Asset Management (Thailand) (Abrdn) anticipates a potential recovery of the Thai stock market in the second half of the year.
The company also expects 10% profit growth for listed companies this year, fuelled by economic recovery trends.
Despite relatively weak stock prices, small and medium-sized companies present strong growth opportunities, said the fund manager.
Darunrat Piyayodilokchai, head of equities at Abrdn, said the Stock Exchange of Thailand (SET) index is likely to face limited risk of further downgrades over the next 6-12 months. This presents an opportunity to gradually accumulate stocks, as the economy is anticipated to show clearer signs of improvement starting in the second quarter.
Consequently, foreign funds are likely to return to the SET, focusing primarily on large-cap stocks.
However, she noted investing will still require caution, with an emphasis on selectively buying stocks that have the potential to outperform the broader market.
Ms Darunrat highlighted three main factors supporting rising Thai equities.
First, Abrdn believes the SET index reached its nadir in the first quarter and expects a gradual recovery from the second quarter, driven by the government's expenditure budget, which is expected to accelerate disbursements from May.
"We still need to monitor the government's flagship digital wallet handout to see if it can proceed as planned in the fourth quarter," she said.
Second, SET earnings per share are projected to grow by 10% in 2024, recovering from a 11% decline last year, according to Bloomberg last month.
Abrdn identifies sectors with clear profitability and better growth prospects than the overall SET as: tourism, commerce, medical, industrial estates, and food and beverage groups.
Third, the SET index sharply declined to 1,330 points this year, marking a new low since the Covid-19 pandemic.
This drop was mainly attributed to external factors, such as an expected increase in US government bond yields and heightened geopolitical tensions, which drove foreign funds to flow into low-risk assets.
However, the index recently dipped to an attractive level with a forward price-to-earnings (P/E) ratio of 14 times, representing an 18% discount from the past 10-year average P/E of 17 times, according to Bloomberg as of April.
Comparing the difference between the returns from investing in stocks and bonds, there is an earnings yield gap of 4.4% for the Thai stock market, which is higher than the historical average of 3.6%.
This indicates an attractive opportunity to invest in stocks, especially compared with the 10-year government bond yield of 2.72%, noted the brokerage.
As of the close of the morning session yesterday, the SET index stood at 1,370.15 points, reflecting less than 2% growth in earnings per share for this year, driven by investor concerns over the uncertainty of profit recovery among listed companies.
"We still see an opportunity for Thai stocks to rise, especially if the Bank of Thailand loosens monetary policy further by lowering the policy interest rate," said Ms Darunrat.
"If you look back at past statistics since 2001, you will find that four out of five times when the central bank initiated interest rate cuts, the Thai stock market experienced substantial rises of 20-30%. The only exception was in 2019, before the onset of the Covid-19 crisis, when the market did not surge significantly following the rate cuts," she said.
"Although external factors may pressure investor confidence in the Thai stock market, we view this as a good opportunity to gradually accumulate shares in quality companies with strong long-term growth prospects."