Country Report

Thai Strategy: Unchartered territory

by Suchart Techaposai / Dec 12, 2017

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Higher SET requires investment-led growth

Thailand’s new era of growth and politics could propel the SET to a fresh peak of 1,900 by end-2018. While near-term optimism is already high, driving the index to a record valuation, the government’s investment-led growth strategy could push it higher. Downside risks come from failure to deliver and tighter global liquidity causing earnings to miss.

New-era Thailand Thailand will enjoy export and public investment-led growth next year. More tax incentives and the Eastern Economic Corridor (EEC) strategy should encourage private investment. This will support the 4-5% annualised GDP growth set under the 12th National Economic and Social Development Plan (2017-21).

Or just a cyclical peak? Failure to turn investment into the next growth engine will limit Thailand’s productivity and trend growth. A global economic slowdown hurting exports, reheating politics and a normalising monetary stance by G3 central banks will set a stage for disappointment and downside to domestic assets.

Reaching new highs The SET is trading at a record valuation. Further rerating would require successful policy execution of the investment-led growth to drive the benchmark towards 2.1x forward PB, from 1.8x now. However, failure to do so and tightening global liquidity could prompt a derating to 1.7x.

Get SET for a volatile year We ascribe a 70% probability that the government achieves investment-led growth with execution of infra projects and the EEC strategy to attract private investment. Hence we expect the SET to hit 1,900 by end-2018.