Easing domestic political uncertainty and the higher likelihood of US interest rate cuts could prompt a return of foreign fund inflows starting next month, driving the Thai bourse back to a range of around 1,500 points next year, say analysts.
Wikij Tirawannarat, senior vice-president of Bualuang Securities, said a recent rebound in the Stock Exchange of Thailand (SET) index was driven by a clearer political situation and clarity on interest rate cuts in the West.
Last Friday, Thailand recorded net buying of 2.84 billion baht in stocks, the largest one-day net purchase in three months, as well as 2.66 billion baht via non-voting depository receipts and 15,000 net long positions on the Thailand Futures Exchange, according to Asia Plus Securities.
"As the interest rate gap is getting slimmer, funds have begun to flow into regional stock markets, including in Thailand, Indonesia and the Philippines, pushing the baht to appreciate recently," said Mr Wikij.
Kasem Prunratanamala, head of research at CGS International Securities Thailand (CGSI), said the brokerage expects foreign flows to return next month following the easing of political uncertainties and the massive underperformance of the Thai market versus regional peers.
"We believe the coalition parties will stick together and the new government should be officially formed in the next couple of weeks. We believe with easing political uncertainties, the Thai market is likely to climb further," he said.
"Investors are likely to rotate out of sectors that are defensive and those with external exposure into domestic plays and those that have underperformed the market massively, but still have good fundamentals."
CGSI maintained its year-end SET index target of 1,420 points, with upside risks including aggressive rate cuts by the US Federal Reserve, the launch of the 150-billion-baht Vayupak Fund slated for the third quarter, and the new Thai ESG funds.
Downside risks include lingering political uncertainties, further delays in the digital wallet unveiling and more capital outflows, said Mr Kasem.
Weerawat Virojphoka, director of securities analysis at Finansia Syrus Securities, said the increasing clarity on Thailand's political landscape and optimism a new cabinet will devise economic stimulus measures could drive the SET index to 1,470 points by year-end, before hitting 1,500 next year.
However, the US economy and aggressive Fed rate cuts remain concerns, said Mr Weerawat, adding there is a possibility Thai interest rates would be slashed later this year.