Commodities, consumers and credit have led the rise and fall of Thailand’s SET Index over the past 18 months. In local currency terms, the Thai stock exchange is the second-worst performer in Asia this year, up just 2.2% year-to-date, after a 19% gain in 2016.
The country’s tourism sector has suffered due to a government crackdown on Chinese package holidays, while private consumption has been weak since the death of King Bhumibol Adulyadej in October last year.
Household debt is high, at 70% of GDP, and non-performing loans are rising. NPL ratios in the banking sector stood at an average of 2.9% in the first quarter, but some individual banks have more than double that.
‘High credit costs, rising cost-to-income ratios and lower non-interest income growth have pressured banks in the first two quarters,’ Kenneth Tang, senior portfolio manager at Nikko Asset Management told Citywire Asia.
‘The two-year-long non-performing loan cycle is showing no signs of abating,’ Medha Samant, investment director at Fidelity International, said.
Across Thailand, there has been a clear disappointment in earnings growth, which is currently at 6% on average, and investors are finding that valuations are running ahead of fundamentals with mid-to-high double digit price-to-earnings ratios.
Fidelity International and Nikko Asset Management are both underweight Thailand, as they wait for fresh signs of growth.
Samant is looking at the IT sector, as well as some real estate businesses.
‘Some of these companies are seeing double-digit earnings growth based on strong balance sheets and dividend yields of 4-5%,’ she said.
Tang said that infrastructure initiatives, funded by the Thai government or coming out of China, ‘is going to be a bright spot’.
There is also room for earnings surprise from exporters of food, automotives and electronics in the second half of the year, he added.