Thai stocks recover: What's driving the rally and can it last?

What happened?

Thailand's blue chip stocks have experienced a remarkable rebound in recent weeks. 

The SET Index reached 1,454.26 points as of 26th September, reflecting a gain of more than 10% since July. This uptick signals renewed confidence in the Thai equity market.

With the renewed confidence in the Thai equity market, Thai Singapore Depository Receipts (SDRs) have bounced strongly too. 

Among the standout performers are Delta Electronics and Gulf Energy, which have delivered returns of 39% and 51%, respectively since 1 July. 

Additionally, Thai SDRs like Advanced Info Service (AIS) and CP ALL are currently trading at their highest levels since their launch.

Let us dive deeper to understand what caused Thai stocks to rebound and if it might be worthwhile revisiting stocks that offer exposure to the Thai market.

What is helping to drive improved sentiment to the Thai stock market?

#1 - Fed interest rate cut benefitted emerging market economies and currencies 

In a move that could benefit emerging markets, the US Federal Reserve recently reduced its benchmark interest rate by 0.5%, setting the new range between 4.75% and 5.0%. 

This cut is positive news for Thailand, as it reduces the appeal of US assets due to lower returns, thereby narrowing the interest rate differential between the US and Thailand. As a result, Thai assets may become more attractive to global investors.

Foreign investors have responded favourably, showing renewed optimism in the Thai market. Net foreign purchases amounted to 19.7 billion baht during the first ten days of September. This injection of foreign capital signals a reversal in investor sentiment, which could provide further stability to Thailand's financial markets.

Additionally, the Thai Baht has appreciated against the US dollar over the same period, strengthening from an exchange rate of 1 USD = THB 36.67 on 3 September to 1 USD = THB 32.35 by 26 September. This currency appreciation is indicative of stronger investor confidence and the broader economic recovery.

#2 - Political certainty following appointment of new Prime Minister 

With Paetongtarn Shinawatra assuming office in August, Thailand's political landscape has entered a phase of increased clarity. The swift installation of the new coalition government, which enjoys support from nearly all major political parties, brings optimism regarding political stability. Key policies, including those outlined by former Prime Minister Thaksin Shinawatra, aim to reshape the economy and address long-standing challenges.

The government's stability provides a more positive outlook for the remainder of the year. The expected economic rebound is underpinned by initiatives like the first phase of digital wallet handouts, a targeted measure that will inject THB 14.2 billion into the economy, benefiting 14.2 million vulnerable and disabled individuals. Each recipient will receive THB 10,000 via cash transfers, offering direct support to the most in need.

However, the second phase of the digital wallet initiative has been postponed due to budgetary constraints, indicating a cautious approach to fiscal policy amid recovery efforts. While this delay may slightly temper expectations, the focus on stability and economic restructuring points to improved market conditions for the rest of the year.

#3 - Vayupak Fund to boost domestic market 

Thailand’s state-controlled Vayupak Fund raised 150 billion baht ($4.5 billion) from retail and institutional investors as part of government efforts to support the domestic capital market. The fund will commence investments from 1 October 2024, and marks a strategic move to enhance investor confidence in the Thai stock market

The Vayupak Fund’s long-term focus and minimum return guarantee of 3-9% over its 10-year tenure have broadened its appeal, particularly to general investors. By concentrating on companies with stable returns, strong governance, and sustainable business practices, the fund aims to attract both domestic and foreign investors. This, in turn, is expected to provide a much-needed boost to key sectors such as energy, banking, communication, and retail.

With the fund’s launch, there is potential to reverse the ongoing trend of foreign investors acting as net sellers of Thai equities. The Vayupak Fund's substantial capital injection and its commitment to high governance standards offer a solid foundation for renewed confidence in Thailand’s capital markets, supporting overall market stability and growth for the remainder of the year.

#4 – Economic recovery expected to accelerate 

Thailand's GDP continues to show promising signs of recovery, advancing from 1.6% growth in 1Q24 to 2.3% in 2Q24 year-on-year. This improvement is driven by stronger exports, along with steady private consumption and a robust tourism sector. 

Looking ahead, GDP is expected to maintain its recovery trajectory in the second half of 2024 (2H24), fueled by increasing public spending as budget disbursements accelerate and export growth benefits from global demand recovery. Notably, exports in July saw a significant 15.2% surge compared to the previous year and reaching a 28-month high, contrasting with the modest 2.0% growth observed in the first half of 2024 (1H24).

The IMF forecasts Thailand’s GDP to grow by 2.7% in 2024 and 2.9% in 2025, supported by stronger tourism, domestic consumption, and external demand. Exports are anticipated to rebound, with growth rates projected at 2.6% for both 2024 and 2025, reflecting a favourable global trade environment.

Tourism, a key economic pillar for Thailand, is also expected to show remarkable recovery. According to the World Bank, tourist arrivals are forecasted to increase by 28.4% y/y in 2024, reaching 36.1 million visitors. This recovery is expected to further strengthen in 2025, with an additional 15.1% growth, bringing total arrivals to 41.6 million, signalling a full return to pre-pandemic levels.

What would Beansprout do?

The sustained GDP recovery, stable political conditions, and a global trend of falling interest rates may continue to drive sustained confidence in the Thai stocks. In addition, the strengthening of the Thai baht against the US dollar adds another layer of confidence for foreign investors.

Key sectors are expected to benefit from these favourable conditions. The tourism and hospitality industries, especially companies like Airports of Thailand (AOT), are poised to capitalise on the anticipated recovery in tourist arrivals. 

Similarly, companies in the consumer sector, such as CP All, stand to gain from the government's digital wallet handout program, which will inject significant liquidity into the economy and support domestic consumption.

Finally, the launch of the Vayupak Fund could particularly benefit companies like Advanced Info Service (AIS), as the fund's focus on stable, high-governance businesses is likely to enhance investor sentiment and drive investments into key sectors like telecommunications.

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