SET tipped to bounce back

The Thai stock market has proved its ability to bounce back rapidly from political setbacks many times and the bourse is expected to repeat the pattern now.

Statistics show that the impact from political turbulence on the stock market is shorter and of less magnitude than that from an economic crisis, said Chanitr Charnchainarong, executive vice-president of the Stock Exchange of Thailand (SET).

Since the military coup in 2006 that toppled ousted prime minister Thaksin Shinawatra, the stock market has been rattled by 14 local and overseas incidents, mostly associated with political issues but also including economic and natural disasters.

Impact from political conflicts lowered the SET index by 7.19% and the market's price to earnings (P/E) ratio by about 1.33 times on average.

The deadly unrest in 2010 inflicted the biggest blow to the stock market with a 11.24% decline, a 3.46 times fall in the P/E ratio and foreign net sales of 6.192 billion baht during the period.

Political turmoil in the past clouded the SET index for about 30 trading days on average before returning to a normal situation.

Economic crises have a more profound impact on the SET index than political ones. On average, an economic crisis prompted a 21.47% tumble in the bourse and a decline of 2.95 times in the P/E ratio.

Lehman Brothers' collapse in 2008 had the largest effect on the stock market in the past decade. The SET index dropped 41.29%, P/E fell to 5.85 times from 9.93 times, and foreign investors pulled 27.56 billion baht out of the market.

The impact from an economic crisis lasts for about six months or 126 trading days on average before the situation returns to normal, Mr Chanitr said.

When political risks emerge, the SET index takes about three weeks or 14 trading days on average to hit the bottom, while an economic crisis takes about 49 trading days for the bourse to bottom out and start picking up.

"When the problems eased off, foreign investors returned to the market with more confidence and the market recovered quickly," Mr Chanitr said.

Even though the stock market has been hit by many negative incidents over the past eight years, its capitalisation has continued growing along with listed companies' earnings.

The SET index gradually increased to nearly 1,300 points at the end of last year from 600 points in 2006, while market capitalisation also more than doubled to 11 trillion baht from 5 trillion.

"Now that there are so many good stocks trading below book value, they are waiting to surge when the problems are over," said Mr. Chanitr.

Securities analysts said Thai shares have a cheap valuation with limited downside risks as the market has largely factored in the impact from political conflicts gripped the country since October.

The SET index plunged to a trough of about 1,250 points early this month from last year's peak of 1,649.

"The downside is limited at around 1,200 or 1,150, even if the political situation becomes more violent, but we see the upside gain opportunity is widening. The SET index can reach 1,350 or higher," said Wiwat Techapulpol, chief investment strategist at Tisco Securities.

Tawatchai Assawapornchai, research manager at Globlex Securities, said listed firms' earnings can still grow this year despite the political turmoil.

''Many food-related stocks' fundamentals remain unchanged, but their share prices have dropped sharply because short-term market sentiment is poor. If the political deadlock is solved, the market will rebound quickly," he said.

A new government is not likely to be in place until mid-2014.

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