Despite remaining in bullish territory, investor confidence for the next three months has dipped 9.02% because of uncertainties regarding offshore capital flows and the domestic political situation, says the Federation of Thai Capital Market Organizations (Fetco).
Fetco's investor confidence index (ICI) for November fell to 150.81 from 165.77 the previous month, dropping into bullish territory from a very bullish outlook.
Investors believe Thailand's stock market will rise over the next three months owing to positive developments in exports and tourism together with improved domestic purchasing power, said Santi Kiranand, senior executive vice-president at the Stock Exchange of Thailand (SET).
A major factor bolstering investor confidence is Thailand's continued economic growth, while potential outflow of offshore capital dragged down investor sentiment, said Mr Santi.
Investment in tourism and leisure stocks remain the most attractive sectors for investors, while agribusiness draws the least interest, he said.
Investors will closely monitor outflows of offshore capital and domestic political developments as the Thai general election is slated for late 2018, said Mr Santi. These factors could put pressure on investor sentiment.
Boonchai Kiatthanavith, managing director at Thanachart Fund Management, said the SET index is anticipated to rally to 1,900 points next year, an 8% upside gain, driven by stocks in the export and tourism sectors.
He said the bourse is expected to peak in the first half, where large-cap stocks will drive the growth of the stock market growth.
Equity assets will generate the highest returns next year compared with other asset classes, said Mr Boonchai.
Mr Santi said the SET index in November reflected moved upward to hover at around 1,700 points, indicating that investors were still confident the domestic economy is moving in a positive direction, as indicated by GDP growth and exports.
On the global front, the US stock market continued to hit historical highs, following an appointment of the new US Federal Reserve Board chairman, who supported a gradual increase in interest rate and continuous tax reform.
However, a key geopolitical risk remains in Korean Peninsula, with investors monitoring the progress of North Korea's ongoing missile tests, he said.
Ariya Tiranaprakit, senior executive vice-president of Thai Bond Market Association, said fund flows still move into the Thai bond market, but investment position has changed from a long-term stance to short-term investment, whereby the ratio of short-term bond investment has risen to 20% from the previous 11-12%.
Total foreign holding of domestic bonds rose to 12% from 9.8% on Dec 15, with an average outstanding investment worth 600 billion baht in bonds issued by the government and the Bank of Thailand, said Ms Ariya.