Why is the SET in a protracted slump?
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Why is the SET in a protracted slump?

Politics continues to weigh on the bourse this year, but there are signs the index could revive after court cases are decided

A display of stock quotes on an electronic board in a trading room. The Thai bourse contracted 8.11% in the first six months this year to be the worst performing index in Asia.
A display of stock quotes on an electronic board in a trading room. The Thai bourse contracted 8.11% in the first six months this year to be the worst performing index in Asia.

On July 1, with investors searching for clues about their investments in the second half of 2024, the Stock Exchange of Thailand (SET) index slipped below the psychological level of 1,300 points for the second time in a month.

The next day, the Thai index declined by 0.83% to 1,288.58 points, making the SET one of the worst performers this year to date.

According to asset management company T. Rowe Price, the Thai bourse contracted 8.11% in the first six months of the year to be the worst performing index in Asia. The Jakarta Composite was down 2.88%, while the Philippine bourse slipped 0.6% in the same period.

"While most Asian markets are in positive territory year to date, three stock markets -- Thailand, Indonesia and the Philippines -- fell into negative territory," Rahul Ghosh, global equity portfolio specialist at T. Rowe Price, said in the firm's investment outlook.


Rakpong Chaisuparakul, senior vice-president of KGI Securities (Thailand), said the Thai stock market's extended loss was greater than expected in June, noticeably underperforming other Asian bourses, attributed to two key negative factors.

Domestically, there was a high level of political uncertainty as the Constitutional Court continued to deliberate on the dissolution case against the Move Forward Party and the legitimacy of Prime Minister Srettha Thavisin and his cabinet, he said.

Overseas, the US dollar index maintained its strength amidst guidance from the Federal Open Market Committee last month that it may cut interest rates by only 0.25 percentage points this year.

As a consequence, foreign equity outflows were significant. The Thai index recovered slightly late in the month after falling below 1,300 points for the first time since November 2020, according to the brokerage.

"The SET index fell below our anticipated support level of 1,330 points last month as the bear market rally affected investor margin accounts and caused forced selling of stocks," said Suchot Tirawannarat, head of research at KGI.

The minor rebound during the last week of June was attributed to the government unveiling plans to bolster the stock market with a new version of the Vayupak Fund, which is an active fund in which the government is a major shareholder, he said.


Most central banks in Asia are monitoring the Federal Reserve, as they typically make monetary policy decisions based on the US central bank's anticipated moves.

The Fed signalled near the end of last year several rate cuts were possible this year. However, the most recent "dot plot" from the Fed's June meeting projected only one cut of 25 basis points for the remainder of 2024.

This was a huge departure from the graph released at the end of March, where the Fed implied rates would be cut by 75 basis points this year, before more aggressive loosening in 2025 of four cuts of 25 basis points each.

According to Asia Plus Securities (ASPS), US interest rates hiked rapidly in the past two years to 5.5%, while Thailand's interest rate is 2.50%.

As the US-Thai interest rate gap has widened since mid-2022, Thais have increasingly deposited with foreign financial institutions, said the brokerage.

Outstanding foreign currency deposits gained by 17.9% in 2022, 38% in 2023, and 8.1% year-on-year to US$21.8 billion (around 800 billion baht) in May 2024.

Over the past 11.5 years, foreigners were net sellers in Thailand worth 1.22 trillion baht, including 1.08 trillion in stocks and 138 billion in bonds, according to ASPS.

In the past year and a half, foreigners were net sellers of 520 billion baht, of which 310 billion were in stocks and 210 billion in bonds, noted the brokerage.


On June 24, the Finance Ministry and stock market regulators said they would ask the cabinet to increase the tax allowance and trim lock-up periods for holders of Thai ESG (TESG) funds as part of efforts to bolster the local equity market stung by the foreign exodus.

Individual investments of as much as 300,000 baht in the funds focused on environmental, social and governance (ESG) issues will be eligible for a tax deduction, increasing from the current level of 100,000 baht.

The government also plans to reduce the period the investments must be held to qualify for the tax break, dropping to five years from eight years.

ASPS projects TESG funds should increase fund inflow by 60-70 billion baht with the changes, close to the level for long-term equity funds, which expired in 2019, as institutional funds hold less cash and invest more in stocks for the remainder of 2024.

"This may encourage funds to accumulate Thai stocks, especially TESG stocks," the brokerage said in a research note.

The Finance Ministry also plans to establish a new fund resembling the Vayupak Fund, a previous state-controlled investment fund that focused on Thai shares with solid fundamentals.

Finance permanent secretary Lavaron Sangsnit said the new fund is expected to draw a minimum of 100 billion baht into the capital market.

Meanwhile, the SET imposed an uptick rule on July 1, aiming to curb short selling transactions and reduce volatility in securities trading. The measure increases transaction costs for retail investors because they have to offer a higher price for a share than the previous price.

As a result, the value of short selling reduced to 1.5 billion baht per day in the first week of July from an average of 6.2 billion last month, while foreign investors returned to net buying of nearly 5 billion baht from net selling of 15 billion in June.


KGI Securities expects the SET index to remain range-bound this month given the lack of a strong catalyst to revive the market.

"Although market valuations look attractive, the market should be capped by continued foreign equity outflows amidst political overhang, possibly prevailing until the Constitutional Court makes its rulings. A different tone on monetary policies between the US and other major economies also obstructs a rebound," said Mr Rakpong.

"We maintain our view that the downside risk to the index is limited. Domestic factors such as the expansion of tax benefits for TESG funds combined with measures to control short selling that have been gradually introduced should trigger an intra-month market rebound, especially if the main index falls to our worst-case range at 1,260-1,270."

Veeravat Virochpoka, head of research at FSS International Investment Advisory Securities, said he sees limited upside for the Thai bourse now, although the index has recovered to 1,320 points this week.

The Constitutional Court's statement indicating a decision before September on the two high-profile cases that will decide the fate of the main opposition party and the premier means political uncertainties "would be prolonged until July or August", he said.

"The SET has gained in line with foreign funds flowing into regional bourses," said Mr Veeravat, who predicts the Thai index reaching 1,350-1,360 points in the near term.

"If we want to see a significant rebound, the Thai economy and corporate earnings have to grow outstandingly."

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