Investors are recommended to hold cash at roughly 20% of their portfolio amid a volatile stock market as the US bond yield rose to a 16-year high and the dollar continues to appreciate, with the market assuming the Federal Reserve will hike interest rates again this year.
The US 10-year treasury yield, which serves as a benchmark for mortgage rates and investor confidence, hit 4.80% on Tuesday, the highest since 2007.
The increase stimulates foreign outflows from the Thai bourse, pressuring the baht to remain weak, said analysts.
The market is uncertain when the US rate may be increased. There are two remaining Fed policy meetings this year: Oct 31-Nov 1 and Dec 12-13.
There is a 25.7% chance of a hike on Nov 1 and 45% probability for the December meeting, according to futures pricing measured by the CME Group's FedWatch Tool.
Bualuang Securities (BLS) views the strengthening dollar and concerns about Thailand's widening fiscal deficit as affecting investor confidence in the Thai stock and bond markets.
The baht fell to its weakest level in 11 months on Tuesday, partly attributed to concerns over fiscal stability, according to BLS.
After the new government announced its proposed policies on Sept 11-12, the currency has lost nearly 5% to fall below 37 baht to the greenback.
Among the stimulus measures is a 560-billion-baht digital wallet policy. Uncertainty surrounding the funding sources of this stimulus raised concerns about the country's widening fiscal position, said the brokerage.
"Once the Thai government indicates a concrete fundraising plan and the market believes US interest rates have reached a peak, prompting US bond yields to fall, then the baht should begin to recover against the dollar. This will attract foreign capital to flow into big-cap Thai stocks," BLS said in a research note.
Every one baht of appreciation against the dollar will result in a net profit increase of 0.1% on the Stock Exchange of Thailand this year, said the brokerage.
Asia Plus Securities (ASPS) suggests investors hold cash for roughly 20% of their portfolio, gradually accumulating large-cap stocks now for long-term investment.
Pressure from a weak baht and rising US bond yields have caused foreigners to continue selling Thai stocks.
Net foreign selling totalled 160 billion baht this year, causing the SET index to drop below 1,445 points on Tuesday, the lowest point in two years and 10 months, said ASPS.
The Thai bourse has an earnings yield of 6.1%, higher than the US stock market at 2.1%, said the brokerage.
"This indicates the possibility of funds returning in the near future," according to ASPS.