Biggest Thai Fund Grows More Convinced of Equity Losses

Thailand’s biggest money manager isn’t backing down from his call that the country’s stock-market rally is about to fizzle out after valuations climbed to the highest level in 14 months versus developing-nation peers.

The benchmark SET Index climbed 7.7 percent through yesterday after Win Phromphaet, the head of investments at Thailand’s Social Security Office, said in June that he was holding cash in anticipation of a market decline. The manager of $37 billion in pension contributions says he now sees a “big correction” and has been paring holdings as values rise to keep the fund’s equity allocation at about 10 percent of assets.

While developing-nation stocks sank in the third quarter amid concerns over slowing Chinese growth and higher U.S. interest rates, Thai shares have rallied as the nation’s military government took steps to revive the economy. The benchmark SET Index is valued at 2.3 times net assets, 57 percent more expensive than the MSCI Emerging Markets Index, according to data compiled by Bloomberg.

“We are more confident that there will be a correction,” Win said in a phone interview from Bangkok. “We are holding cash on hopes that we can buy shares at cheaper prices.”

The last time the SET index’s relative valuation was this high, in July 2013, it dropped 15 percent over the following six months, versus a 6.8 percent gain in the emerging-market gauge.

Government Spending

The SET climbed 0.1 percent today to close at 1,587.35, the first advance in three days.

After seizing power as an army general in May, Prime Minister Prayuth Chan-Ocha has helped to restore political stability and boost consumer confidence that was shaken by six months of political deadlock. The Thai parliament last month approved a budget proposal of 2.58 trillion baht ($80 billion) for the fiscal year through September 2015, with spending to be frontloaded in the fiscal first quarter.

“Overseas investors are expected to boost their holdings of Thai stocks as there is a clearer sign of a rebound in the economy and corporate earnings,” said Siripun Sutharoj, the Bangkok-based chief investment officer at UOB Asset Management (Thailand) Co., which oversees about 260 billion baht. The SET index may climb as much as 11 percent by next year to reclaim its 1994 record high, she said.

Honeymoon Over

While global funds added $1.2 billion to their Thai stock holdings last quarter, local institutions sold the equivalent of $327 million, according to data compiled by Bloomberg. The SET index rose 6.7 percent during the period, extending this year’s gain to 22 percent. The MSCI emerging markets measure is little changed this year.

“The honeymoon period for Thai stocks could come to an end,” Voravan Tarapoom, chief executive officer of BBL Asset Management Co. in Bangkok, which oversees about $15 billion, said by phone. “A correction is due in the short term as the market has rallied ahead of earnings.”

Southeast Asia’s second-biggest economy narrowly avoided a technical recession in the quarter ended June 30 as gross domestic product increased 0.9 percent from the previous three months, when it shrank 1.9 percent. The Bank of Thailand held its 2014 growth forecast at 1.5 percent and cut the 2015 estimate to 4.8 percent from 5.5 percent because of a sluggish recovery in exports, Assistant Governor Mathee Supapongse said on Sept. 26.

The SET index will face “selling pressure” at the 1,600 level, Win said. “There will be more downside risk.”

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