Projected interest rate cuts by the Federal Reserve designed to stop the US falling into recession could help shore up the Stock Exchange of Thailand (SET) for the rest of 2024 after the index dipped 6.7% in the first seven months of this year, says a bourse executive.
Soraphol Tulayasathien, senior executive vice-president at SET, said the market expects the Fed to move quickly to slash rates, making deeper cuts than earlier forecast after a weak jobs report and a July manufacturing index that raised recession fears.
"We are starting to see net foreign fund inflows, starting with the bond market, worth roughly 20 billion baht per week in the past couple of weeks as funds moved out of the US market, where rates could soon be cut," he said.
"We are waiting for a trigger point for inflows from bonds to the stock market, which is likely to be driven by the financial performance of listed companies."
The market expects US rate reductions of two or three times this year, falling to 4% from 5.25-5.5%.
"Each cut is likely to be sizeable. But the Fed has to be careful because if the cut is large, the market will perceive that the economy is really sliding into a recession," said Mr Soraphol.
SET president Pakorn Peetathawatchai said yesterday when the Thai market staged a rebound following three consecutive days of losses that foreign investors were net buyers of US$50 million (1.7 billion baht) by midday.
"Certainly domestic political uncertainties negatively affect the investment sentiment of the SET, but investors can opt for stocks immune to this factor or likely to be slightly impacted," said Mr Pakorn, referring to the Constitutional Court's rulings this month on the Move Forward Party's dissolution and the dismissal case against Prime Minister Srettha Thavisin.
Foreign investors were net sellers of Thai shares in July, but at a slower pace as the baht strengthened against the greenback throughout the month.
The Thai index finished at 1,320.86 points last month, up 1.5% from June, but fell 6.7% from the end of 2023 as investors are awaiting a clearer picture of the government's economic stimulus and assessing the impact of market confidence measures implemented in July.
"The Thai economic recovery is gaining speed, underpinned by exports, tourism and higher government spending," said Mr Soraphol.
"The SET's tighter measures on short selling have effectively curbed such activities, encouraging more domestic investment and counterbalancing foreign investment trends during the month."
For the first seven months this year, average daily trading value on the SET and the Market for Alternative Investment declined 22.3% year-on-year to 44.2 billion baht.
Foreign investors sold Thai shares worth a net 118 billion baht over the period as their trading ratio remained the highest among investor types for 27 consecutive months.
The Thai stock exchange's forward price-earnings (P/E) ratio was 14.3 times at the end last month, exceeding Asian stock markets' average of 12.5 times. The historical P/E ratio is 16.0 times, beating Asian bourses' average of 15.1 times.
The dividend yield ratio at the end of July 2024 was 3.53%, higher than Asian stock markets' average of 3.17%.
