The Stock Exchange of Thailand (SET) was volatile in December with several negative news items affecting the market and blunting modest gains during the first week.
The gains in early December reflected hopes that Thai ESG funds could help produce a better close to the year. Statistically, the last month of the year usually closes higher than November because investors plough into tax-exempt funds to obtain deductions.
Political problems in South Korea were a negative surprise, but did not directly impact the Thai market much. The Thai government announced a plan to lower taxes for both businesses and individuals, but a proposed increase of the value-added tax to help pare down the budget deficit was ruled out.
News about CP Axtra (CPAXT) investing in community malls, in a deal involving another CP Group company, led to market concern about potential governance issues. As a result, CPAXT and CPALL shares fell significantly.
Moreover, continuing problems with unpaid subcontractors, which is the responsibility of the main contractor, at the Clean Fuel Project of Thai Oil (TOP) depressed the market in late December.
Midway through the month, the US Federal Reserve decreased its policy rate by 25 basis points (bps) as expected, but the outlook for 2025 is for only two more cuts, pushing up bond yields to almost 4.5% at the end of the year. This rise in the US 10-year bond yield harmed market sentiment.
The SET index ended 2024 at 1,400.21 points, down 1.9% month-on-month with average daily turnover down 7.3% to 39.9 billion baht. The year-end tally was a decrease of 1.1% from 1,415.85 at the end of 2023.
We estimate Thailand's 2024 GDP growth at 2.8%, rising slightly to 3% in 2025.
We see a generally more positive economic outlook for this year, projecting higher public and private investment as government budget approval was on schedule. Public investment already picked up in late 2024. Continued improvement in the tourism sector could result in arrivals reaching the 2019 record this year.
We still expect the Bank of Thailand to cut its policy rate by 25bps at least once this year, although this now looks likely to take place in the second half.
However, the biggest risk currently concerning us and the market is the anticipated return of trade wars after Donald Trump takes office on Jan 20. We expect a prolonged overhang from US tariff threats. The good news is Thailand is not on the priority list for Trump's trade actions, though knock-on impact from expected new tariffs on China needs to be watched.
Another concern for Thailand this year is persistent high household and small business debt levels. The government is trying to ameliorate the situation with the "You Fight, We Help" relief programme. Enrolment in the campaign will end in February.
The SET index has now declined for two consecutive years, the first time this happened in 20 years, and myriad uncertainties still surround the Thai market. In a bear-market scenario, a trade war could impact Thai GDP by around one percentage point. SET earnings per share (EPS) are another concern for the Thai market. We project average growth of 10% in EPS for 2025, but flag that historically, such forecasts end up being downgraded as the year unfolds.
Another market risk this year is the long-term fund (LTF) investment scheme. This year will see the last lot of LTFs allowed to be legally redeemed. In other words, all remaining LTFs in the market (totalling 220 billion baht at the end of 2024) have no more restrictions on selling.
That said, we believe some of these funds will be rolled over to the Thai ESG funds for investors to continue benefiting from tax exemptions. While the LTF maximum for tax benefits was 500,000 baht, the TESG maximum is 300,000 baht. All things considered, we should see net selling this year for LTF and TESG funds.
JANUARY PICKS
Our picks for this month are stocks with solid fundamentals, fourth-quarter 2024 profits, and dividend yields: mobile operator Advanced Info Service (ADVANC), Bangkok Expressway and Metro (BEM), Thai Asphalt (TASCO) and TMBThanachart Bank (TTB).
- ADVANC should announce an upbeat profit for the fourth quarter of 2024 as average revenue per user rises and number of prepaid users grows, particularly tourists. Its fibre business is showing momentum after joining with 3BB. Mobile phone sales, especially the iPhone16, could enhance profitability. ADVANC's decent dividend yield of 4% per year also makes it worth keeping in your portfolio.
- We have long favoured the transport play BEM. All negative hangovers appear to have been resolved in 2024, including the Orange Line dispute and double-deck road issues. Ridership has continued to increase with added lines feeding more passengers into the system, leading to new highs in ridership almost every quarter. The opening of the One Bangkok mall also increased traffic for the Blue Line. For the expressway arm, traffic was consistently high at more than 1.1 million cars per day. These numbers will be bolstered by the double-deck project, still several years in the future. BEM's annual profit should continue to reach new highs going forward.
- TASCO is a new addition to our favourite stocks. We believe its profit for the fourth quarter of 2024 and for 2025 will continue to grow. The impact from heavy floods late last year will benefit TASCO as road repairs ramp up. The increase in public spending, particularly on infrastructure, brightens the profit outlook as well. Asphalt export prices are trending higher, further enhancing TASCO's profit potential.
- Our last pick for the month is TTB. We expect fourth-quarter profit for the bank at a plump 5 billion baht, benefiting again from its tax-reversal cushion. We expect the net interest margin to be flat at 3.25%. Although 2025 will be challenging for banks, TTB still has its tax benefit allowance, allowing its profit to continue outperforming its peers for the year. TTB's dividend yield of more than 7% per year is another of its investment highlights.
