Thai Stocks May Extend Gains on Spending, Top Analyst Says

Thailand’s benchmark stock index may climb a further 16 percent this year as a rebound in spending following the nation’s worst floods in almost 70 years boosts earnings, according to SCB Securities Co.

The benchmark SET Index may rise to 1,300 by the end of the year driven by shares of oil companies and food producers as demand increases and prices rise, Sukit Udomsirikul, an investment strategist at SCB Securities, said in a phone interview from Bangkok. The SET has gained 9.2 percent this year and rose 0.4 percent to 1,119.97 at 12:04 p.m. in Bangkok.

“Thai equities are very attractive to overseas investors because their valuations are still at a discount to other Southeast Asian markets,” Sukit, jointly ranked the nation’s top equity strategist with Credit Suisse Group AG’s Daniel Fineman by the Securities Analysts Association last year, said today. “Corporate earnings growth will rebound dramatically on higher spending on flood reconstruction and a recovery in domestic consumption.”

The SET trades at 11.8 times estimated earnings, compared with 13.9 times for Singapore’s benchmark index, 14.5 times for the Philippines, Malaysia’s 14.5 times and Indonesia’s 13.4 times, according to data compiled by Bloomberg. The central bank said the economy may grow 4.9 percent this year, from an estimated 1 percent in 2011, when flooding swamped more than 16,000 factories and killed more than 700 people.

Oil Companies

Overseas investors bought a net 5.45 billion baht ($177 million) of Thai shares yesterday, the highest amount since Dec. 23, according to stock-exchange data. That brought this year’s total investment to 21 billion baht, compared with a 30.8 billion-baht selloff in the same period in 2011.

Prime Minister Yingluck Shinawatra has pledged to spend 350 billion baht on infrastructure to prevent a repeat of last year’s flooding. The cost of the disaster is about 1.43 trillion baht, according to the finance ministry’s estimate.

Oil companies and food producers will outperform the market in 2012, Sukit said. Higher oil prices will boost earnings at PTT Pcl, the nation’s biggest company by market value, and PTT Exploration & Production Pcl, an oil explorer, he said.

Charoen Pokphand Foods Pcl, the nation’s largest producer of animal feeds and meat, will also benefit from a recovery in domestic demand, he said.

Thailand was ranked second behind China in Bloomberg Markets’ first ranking of the most-promising emerging and frontier markets. The list is based on more than a dozen measures of the investment climate, from forecast gross domestic product growth to ease of doing business.

Political Risks

Still, the valuation of Thai stocks dropped below that of other countries in the region on concern about the government’s flood-prevention plan and domestic political tension, according to Aberdeen Asset Management Plc.

“The possible repeat of the devastating floods still unnerves overseas investors, as the government hasn’t demonstrated a clear prevention plan,” Adithep Vanabriksha, Bangkok-based chief investment officer at Aberdeen, which manages about $270 billion of assets worldwide, said in an interview yesterday. “Political rifts haven’t yet been resolved and can worsen at any time.”

Yingluck’s ruling Pheu Thai party submitted today a proposal to create a Constitution Drafting Assembly, the first step in a plan to overhaul a constitution written after a 2006 coup that deposed former prime minister Thaksin Shinawatra, Yingluck’s brother. The 99-member assembly has 180 days to write a new draft, spokesman Prompong Nopparit said by phone yesterday.

Similar moves by the party’s allies in 2008 sparked violent street protests by Thaksin’s opponents that shut down parts of Bangkok and culminated in the seizure of the city’s airports.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE