(Bloomberg) -- Not since 2009 has Thailand’s stock market rallied so much at a time when foreign investors are selling.
The benchmark SET Index climbed 5.6 percent in January as $128 million of withdrawals by international money managers were offset by $551 million of buying from local institutions and the proprietary trading desks of Thai brokers, according to data compiled by Bloomberg. The equity gauge climbed another 2.1 percent last week.
While foreigners are cashing out as valuations climb to the highest levels since at least 2005 and the Federal Reserve moves closer to raising interest rates, domestic investors are buying amid low returns from alternatives such as bank deposits and gold. Thailand’s eight-month-old military government has spurred optimism among local money managers after pledging to spend about 3 trillion baht ($92 billion) through 2022 to revive the economy and improve railways, waterways and airports.
“Thailand’s growth will accelerate, earnings growth will be revised up and international investors will return,” Adrian Mowat, the chief Asian equity strategist at JPMorgan in Hong Kong, said in an interview on Feb. 3.
The SET Index is Southeast Asia’s best-performing equity index since the military seized power on May 22, ending almost seven months of political turmoil between Thailand’s Pheu Thai party and the Democrat Party. The gauge is valued at 15.2 times estimated earnings for the next 12 months, compared with the five-year average of 12.2.
The foreign outflows from Thai stocks in January compare with $529 million of net inflows into the Philippines and $19 million into Indonesia, according to data compiled by Bloomberg.
Thai mutual funds, insurers and other institutions bought a net 9.8 billion baht of shares during the month, adding to 71.4 billion baht of purchases in 2014. The proprietary accounts of local brokerages purchased a net 8.26 billion baht, while individual investors sold 13.5 billion baht, according to stock exchange data compiled by Bloomberg.
The Thai stock market faces risks from the army’s eventual handover of power and the prospect of U.S. interest-rate increases, according to Philip Li, a Hong Kong-based money manager at Value Partners Ltd., which overseas $13 billion.
Prayuth Chan-Ocha, the army chief who became prime minister after the coup, has so far refused to commit to a timeframe for the next general elections in Thailand, saying a return to democracy must be preceded by the drafting of a new constitution.
Traders of futures contracts are betting that the Federal Reserve will raise its main interest rate by at least 0.5 percentage point by December, according to data compiled by Bloomberg. The SET index sank as much as 25 percent from its May 2013 high amid concern that Fed rate increases would spark capital outflows.
“We still have political uncertainties,” Li said in an interview in Hong Kong on Feb. 4. U.S. rate increases would “definitely cause money outflows. That’s a clear risk we are already seeing.”
The last time the SET gauge rose this much amid foreign selling, in December 2009, the benchmark index had just completed a 63 percent rally for the year. The measure gained another 7.3 percent in the next three months and was up 41 percent by the end of 2010.
Higher state spending and low oil prices are poised to drive further stock gains, according to Thidasiri Srisamith, the head of equities at Kasikorn Asset Management Co., Thailand’s biggest private money manager with about $33 billion. She said the SET Index may rise as high as 1,700 this year, versus a closing level of 1,613.63 on Friday.
The Thai economy may expand 3.5 percent in 2015, up from about 0.5 percent last year, amid a rebound in consumption and private investment, the International Monetary Fund said on Feb. 4.
Lackluster returns from alternative investments are enhancing the stock market’s appeal. Gold prices in Thai baht have dropped for two straight years, while the average interest rate on three-month deposits at four major Thai banks is 1.1 percent, the lowest level since February 2011, according to data compiled by Bloomberg.
Earnings at SET index companies will probably climb 22 percent in the next 12 months, compared with a 6 percent increase for the MSCI Emerging Markets Index, according to projections compiled by Bloomberg.
Stock trading by local individual and institutional investors accounted for about 80 percent of total volume in Thailand this year through Feb. 5, compared with 78 percent a year ago, according to stock exchange data. Their share of trading has increased from about 75 percent in 2012.
“Overseas investors now have less influence on the overall market,” said Jessada Sookdhis, the Bangkok-based chief investment officer at CIMB-Principal Asset Management (Thailand) Co., which manages about $1.5 billion. “Mutual funds and individuals are ready to step in and support the market as soon as share prices drop to attractive levels.”
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