Biggest Thai Fund Manager Says Stock Rally Set to End on Crisis

The longest rally in Thai stocks since 2012 is poised to end as valuations climb and the nation’s prolonged political crisis derails economic growth, according to the country’s biggest private money manager.

Local investors should shift money into U.S., European and Japanese shares to reduce risk, Chongrak Rattanapian, the executive chairman of Kasikorn Asset Management Co., said in an interview yesterday. Equity trading in Thailand has dropped by 56 percent this year, while price swings in the nation’s benchmark index are more than double those of the MSCI World Index of developed-nation stocks.

The SET Index climbed for a seventh day yesterday, the longest winning streak since December 2012, as clashes between security forces and protesters subsided and demonstrators removed key road blockades in Bangkok. The rally sent valuations to the highest level this year, even amid central bank forecasts for a second straight year of economic growth below 3 percent.

“The market is too optimistic about the current political situation, because a resolution is unlikely in the foreseeable future,” Chongrak said at the Bangkok office of Kasikorn, which manages about 940 billion baht ($29 billion) of assets. “The deadlock will continue to have a significant impact on the economy and corporate earnings, as state spending and private investments have been at a standstill for several months.”

Shrinking Volume

The SET index is still 6.3 percent below its level on Oct. 31, when street demonstrations against Prime Minister Yingluck Shinawatra’s administration began. Thailand’s average daily trading volume has dropped 56 percent this year versus the whole of 2013, according to data compiled by Bloomberg.

The benchmark measure is valued at 12.7 times projected 12-month earnings, the highest level since Dec. 27. The gauge’s 90-day volatility, a measure of price swings, was 18.7 yesterday, compared with 9.4 for the MSCI World Index. The Thai index was little changed at 1,352.22 as of 11:49 a.m. local time.

Chongrak’s outlook contrasts with that of Asia Plus Securities Pcl, the nation’s second-biggest brokerage by market value. The firm advised investors yesterday to increase holdings of domestic equities as political tension eases. The return of foreign money to Thai stocks is also bolstering sentiment, the brokerage said.

Overseas investors bought a net $69.3 million of Thai stocks yesterday, a fourth day of inflows and the biggest purchases in two months, according to the exchange data compiled by Bloomberg.

Economy Outlook

The SET may still climb a further 5 percent from yesterday’s close to a peak of 1,420 this year, if there’s a quick resolution to the political crisis and a new government accelerates economic stimulus policies, Chongrak said.

He recommended shares of food producers and electronic parts makers, whose revenue and earnings stand to benefit from the economic recovery in developed countries, and are less affected by domestic turmoil.

UBS AG advised investors this week to wait for more clarity on the political crisis, or more attractive valuations, before buying.

“The politically induced slowdown in activity is already happening against the backdrop of a major credit expansion, and a political solution is no clearer,” Niall Macleod, a strategist at UBS, wrote in a note on March 4.

Yingluck’s administration has endured more than four months of protests as opposition groups accuse her government of corruption and abuse of power. She dissolved parliament in December and called for a general election on Feb. 2, which the biggest opposition party boycotted.

The Thai economy may expand less than 3 percent in 2014 as the unrest damages domestic demand, Don Nakornthab, director for the macroeconomic policy office at the Bank of Thailand, said on Feb. 28. Gross domestic product grew 2.9 percent in 2013, compared with an average of 4.2 percent since 1999, according to data compiled by Bloomberg.

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