beyondbrics

Thailand’s SET Index moved above the 1,000 point mark for the first time since 1996 on Tuesday, reflecting the ebullient confidence of Asian markets, but it also underlined concerns that cheap western money could be fuelling bubbles in the region. 

The SET is so far up a little over 38 per cent on the year (42.2 per cent in dollar terms), significantly outperforming the dollar-denominated FTSE/ASEAN index, which is up 26.3 per cent.

The renewed interest in Thai stocks is being driven by a combination of the strength of the economy, which is expected to grow 7 to 8 per cent this year; the expectation that there are still more currency gains to be had; and the fact that the country’s dodgy politics meant that many portfolio investors were underweight at the beginning of the year.

But the SET’s new muscles shouldn’t hide old weaknesses. The market is still relatively shallow, with a market cap of just $270bn – one eighth the size of Hong Kong – and its somewhat erratic progress is disproportionately driven by relatively few big domestic players, some of whom have in the past not been very kind to minority shareholders.

But despite that, and the fact that on Tuesday the index ducked back down below the 1000 point parapet after a quick look, the short-term outlook is for more strength.

The G20′s reassuring message that they were going to try to avoid competitive currency devaluation is good news for Asian currencies that have appreciated strongly against the dollar – the Thai baht is up 11 per cent – but it doesn’t solve the problem of the wave of money unleashed by quantitive easing in the west sloshing ashore in Asia in search of better returns.

Thailand re-instituted some light capital controls on the bond market two weeks ago, putting back a 15 per cent withholding tax on foreign investors’ bond profits, but so far the stock market has escaped, partially because there has been less foreign interest in equities.

But if money keeps on coming in, that could change.

Related:

India warned over capital inflow risks - FT
ING: time to take some profit out of emerging Asia – beyondbrics
Thai capital controls: more to come – beyondbrics