Stock market analysts have revised down the Stock Exchange of Thailand (SET) index target this year after the index dropped to a three-month low of around 1,470 points, though they noted that further downside is now limited.
Kasikorn Securities (KSEC) has adjusted its SET index target to 1,544 points by the end of 2023, down from 1,666 points projected earlier.
"KSEC has a more cautious view on rising bond yields, which are expected to drag down the price-to-earnings ratio of the Thai stock exchange," it said.
"It is expected that Thailand's interest rates will continue to rise due to inflationary pressure from high oil prices, and a larger government budget deficit to support economic stimulus measures, which will result in higher bond supply," the brokerage added.
According to KGI Securities (Thailand), the SET index dropped 6% month-on-month in September and 11.8% year-to-date.
The country's stock market was much weaker-than-expected last month, in contrast to the brokerage's anticipation of extended upward market momentum from August after the setting up of a new government, said senior vice-president Rakpong Chaisuparakul.
In September, the bourse was weighed down by negative external factors such as a sharp rise in US treasury yields and the dollar index amid strong US economic data, as well as relatively hawkish guidance from Federal Reserve officials.
Domestically, concerns are rising about Thailand's fiscal discipline and the country's credit rating as the cabinet is struggling to reach a funding plan for the 560-billion-baht digital wallet stimulus.
"Those issues drove a significant depreciation in the baht and triggered foreign equity outflows," noted Mr Rakpong.
The major trend of the SET index this month should remain downward for a couple of reasons. First, the fourth quarter could be when US economic data is much stronger than in Europe, which should keep Fed officials in a hawkish mode and further drive the dollar appreciation.
"Nonetheless, the market came down significantly in September, and we see the price downside as being limited," Mr Rakpong added.
KGI analyst Suchot Tirawannarat said the return of stock investment is expected to be low for the next 1-2 months.
"For risk averse investors, we recommend reducing investment weight in equity when stock prices rebound and set the money aside. 'Wait and see' is our recommendation for this group of investors," said Mr Suchot.
Technically, the SET index support levels are 1,460 and 1,400 points. Meanwhile, resistance levels are 1,500 points and 1,530 points, he added.
Asia Plus Securities (ASPS) said the SET index is dull when liquidity in the bourse is low.
"SET liquidity weakened due to thin trading value in big-cap stocks and lower turnover, especially for SET50 stocks. As liquidity drops, the SET index will fall with thinner trading," ASPS said in a research note.
Nonetheless, the brokerage expects stock markets to rebound after negative factors subside. For example, high interest rates have successfully slowed down inflation. Oil prices have eased while China's economy is gradually recovering, driven by economic stimulus measures since late-July.
"The SET index has limited downside and will probably rebound in the fourth quarter as there are many positive technical signs," ASPS said on Monday.