Thai stock market takes another hit as foreign investment dips
Analysts point to five reasons for the decline in the stock market, political instability among them, but are upbeat about the prospects for 2025
The Thai stock market saw a further decline on Thursday (June 20) with the SET Index hitting its lowest point of the day at 1,293.69, down by 10.13. The market closed at 1,298.29, a decrease of 5.53 or 0.42%, with a trading value of 37.897 billion baht.
Foreign investors recorded a net sell of 1.959 billion baht, marking 20 consecutive days of net selling since political tensions escalated. This trend reflects foreign investors’ continuous net selling of Thai stocks, which now totals more than 40 billion baht.
A decade of declining foreign investment
Over the past decade, the proportion of Thai stocks held by foreign investors has decreased by 10%, equivalent to an outflow of over 1 trillion baht. Consequently, the share of foreign investors in the Thai stock market has dropped from 37% to 27%. In the last six months alone, foreign investors have sold over 100 billion baht worth of Thai stocks.
Why the stock market remains stagnant
Sorapon Weerametheekul, head of Investment Strategy at Kasikorn Securities, identified five main reasons why the Thai stock market has been stagnant over the past decade:
Economic growth trap: Thailand's GDP growth remains stuck at 2-2.5%, with economic forecasts typically being revised down by 1% each December compared to the start of the year.
Earnings per share (EPS) trap: The EPS of listed Thai companies remains at 90-95, reflecting a quarterly profit capacity of no more than 25 billion baht, or 1 trillion baht annually.
Price-Earnings (PE) ratio trap: The PE ratio of the Thai stock market is stuck at 13, far from the 20 seen in developed markets.
Agricultural and manufacturing sector Trap: Both sectors struggle with competitiveness. Agriculture faces recovery challenges due to low product prices, especially rice. Manufacturing, which accounts for 30% of GDP, has seen only 3% of its structure embracing AI and technology, the lowest in the region compared to North Asian countries like Taiwan and South Korea, where 15% of the manufacturing sector is tech-driven.
Political risk trap: Persistent domestic political risks make “foreign investors” sceptical about a recovery in Thai stocks, leading to continued profit-taking selling. The SET Index has slipped below 1,300 points, and in the past six months, foreign investors have offloaded more than 100 billion baht in Thai stocks.
Sorapon noted that top regional hedge funds cite political risks as the main reason for their continued selling of Thai stocks, fearing potential delays in the 2025 budget similar to those seen with the 2024 budget.
Domestic investors and political risks
While most domestic investors are not overly concerned with political risks, they are currently driven by fear rather than reason. This sentiment is evident from the price floor touches of several stocks used as collateral in margin accounts. When stock prices fall significantly, it triggers margin calls and forced selling. This situation mirrors the market conditions of 2020 during the Covid-19 pandemic, though the current risks differ.
Factors supporting buying momentum from 1,280 points
Despite the challenges, there is optimism for the Thai stock market's short-term outlook due to three key factors that could stimulate buying momentum:
Political clarity: By early July, the domestic political situation is expected to become clearer and more stable.
Improved economic and EPS outlook: The economic and earnings outlook for the second half of the year is expected to be better than the first half.
Government initiatives: The government’s clear stance on the return of the Long-Term Equity Fund (LTF) and the implementation of the uptick rule from July 1 will also support the market.
These factors are expected to attract buying interest. The short-term outlook for the Thai stock market leans more towards an upside, with the year-end SET Index target expected to be around 1,280 points. In the next 12 months, or by mid-2025, the SET Index has the potential to rise to 1,450 points, offering a 10% upside given the optimistic economic outlook for next year, supported by a fully operational budget.
