(Updates with closing stock index in seventh paragraph.)
March 8 (Bloomberg) -- Never before have Thai stocks rallied so much at a time when foreign investors were heading for the exit.
The benchmark SET Index rose 4.6 percent last month even as international money managers sold a net $583 million of the nation’s shares, the biggest outflow among 10 Asian markets tracked by Bloomberg. The advance, propelled by $611 million of purchases by domestic investors, is the largest for any month when net overseas withdrawals exceeded $500 million. The index fell an average 5.5 percent during such periods since Bloomberg began compiling the data in 1999.
“Local investors are prepared to step in and hunt for bargains,” Petcharat Powattanasatien, who helps oversee about $30 billion as the head of equity investment at Bangkok-based Kasikorn Asset Management Co., said by phone on March 4. Her firm is the nation’s biggest money manager.
Thai citizens are driving equity gains as the nation’s $377 billion economy grows at the fastest pace since at least 1993 and local incomes climb. While Morgan Stanley is advising clients to cut stock holdings after valuations rose to record highs, Aberdeen Asset Management and ING Investment Management are still bullish. The SET index has recovered every time when foreign selling coincided with monthly losses since September 2008, rallying an average 22 percent in the next 12 months, data compiled by Bloomberg show.
“Thai stocks are still relatively quite attractive given the outlook for the economy and company earnings,” Adithep Vanabriksha, the head of equities for Thailand at Aberdeen, which oversees about $314 billion, said by phone from Bangkok on Feb. 27. The Aberdeen New Thai Investment Trust has jumped 35 percent this year, the top performer among 225 Thai stock funds tracked by Bloomberg.
Adithep favors shares tied to domestic demand, including Kasikornbank Pcl, Thailand’s fourth-largest listed lender by assets, and Siam Makro Pcl, which sells food and consumer products. Both companies are based in Bangkok.
The SET index rose 0.4 percent to close at a 19-year high of 1,566.92. It’s up 13 percent this year. The MSCI Southeast Asia Index has advanced 4.7 percent in 2013, while the MSCI Emerging Markets Index has increased 0.8 percent.
Outflows from Thai stocks last month compare with $1.2 billion of inflows into Indonesia and $146 million of net purchases in the Philippines, according to data compiled by Bloomberg. The Jakarta Composite Index and the Philippine Stock Exchange Index both climbed 7.7 percent in February.
Stock trading by local individual and institutional investors accounted for about 73 percent of total volume in Thailand as of March 6, compared with 61 percent five years ago, exchange data compiled by Bloomberg show. Average daily turnover on the Stock Exchange of Thailand’s main SET board and its Market for Alternative Investment surged 135 percent in January from a year earlier to about 58 billion baht ($1.95 billion), the bourse said in a Feb. 20 statement.
“This is a positive change as it helps to reduce volatility within the market,” Cindy Huang, a manager of the ING Thailand Fund, which returned about 26 percent this year, said by phone from Taipei on Feb. 26. Huang favors property and construction stocks.
The SET index’s 30-day volatility was 12.2 yesterday, down from an average 20.2 during the past decade, according to data compiled by Bloomberg. That compares with readings of 9.8 for Indonesia’s benchmark index and 13.8 for the Philippine gauge.
The baht has strengthened 3.4 percent against the dollar during the past 12 months. The cost to insure government bonds, rated BBB+ at Standard & Poor’s, against non-payment for five years using credit-default swaps was 87 basis points yesterday, data compiled by Bloomberg show. That compares with 75 basis points for Malaysia, which is rated one level higher at S&P.
Thai shares are expensive after valuations surged, according to Jonathan Garner, the Hong Kong-based chief Asia and emerging-market strategist at Morgan Stanley. He advised cutting positions to below their weighting in benchmark indexes in a Feb. 27 report.
The SET Index trades for 14 times analysts’ estimated 12- month earnings, the highest level since Bloomberg began tracking the data in January 2006 and a 36 percent premium to the MSCI Emerging Markets Index. The Thai gauge’s 82 percent advance from its Oct. 4, 2011, low has exceeded the 77 percent average gain during bull markets since 1987, data compiled by Bloomberg show.
Capital outflows and Thailand’s widening current-account deficit spurred the government to devalue the baht on July 2, 1997, a move that helped spark the Asian financial crisis.
Foreign investors withdrew about 30 billion baht, or $1 billion at current exchange rates, from Thai stocks in the 12 months ended June 1997, according to exchange data compiled by Bloomberg. The gauge slumped 60 percent in the period, versus a 16 percent drop in MSCI’s Southeast Asia gauge. The Thai index is still 11 percent below its all-time high in January 1994.
Thailand’s economy and its financial markets have become more resilient to foreign withdrawals, according to ING’s Huang. The nation’s foreign-exchange reserves have grown more than 500 percent since the Asian crisis to about $179 billion as of Feb. 22, central bank data compiled by Bloomberg show. Thailand will probably record a current-account surplus equivalent to 0.1 percent of gross domestic product in 2013, data from the International Monetary Fund show.
GDP expanded 18.9 percent in the three months through December, the fastest pace since Thailand began compiling figures in 1993, as manufacturing rebounded from the worst floods in almost 70 years in 2011, the government said on Feb. 18. The economy grew 6.4 percent in 2012, compared with the decade average of 4.2 percent. The expansion may slow to between 4.5 percent and 5.5 percent this year, according to government estimates.
Rising incomes and tax incentives for long-term investment have spurred more Thais to put money in stocks, said Aberdeen’s Adithep. The country’s per-capita GDP has increased to about $5,850 from $3,900 five years earlier, according to the Washington-based IMF. Thailand allows citizens to make tax-free investments of as much as 1 million baht a year into retirement and long-term equity funds.
Shares offer better returns than gold and bank deposits at a time when surging real estate prices have made property investment unaffordable, said Neeranuch Pornkuakulsap, a 51- year-old owner of a garment factory in Bangkok, who has about 5 million baht of savings.
Bullion has dropped about 5.5 percent this year. The average interest rate on 3-month deposits at four major Thai banks is 1.61 percent, the lowest level since July 2011, according to the Bank of Thailand. Resale prices of completed luxury condominium units in Bangkok jumped 15.6 percent in the third quarter of 2012 from a year earlier, according to CBRE Group Inc., a Los Angeles-based property brokerage.
“Most of my friends are making a lot of money” in stocks, said Neeranuch, whose equity holdings have gained about 10 percent this year. “I still think it will generate much better returns than putting money in the banks.”
The long-term prospects for Thailand’s economy and stock market are both positive because infrastructure spending is increasing and the country is luring foreign direct investment, Medha Samant, an investment director at Fidelity Worldwide Investment, which oversees about $240 billion, said by phone from Hong Kong on Feb. 28. The $1.2 billion Fidelity Thailand Fund returned about 13 percent this year, according to data compiled by Bloomberg.
Prime Minister Yingluck Shinawatra’s government approved on Feb. 27 a 2 trillion baht infrastructure-spending plan to build high-speed trains and mass transit networks.
“The next catalyst will be when the government starts to disburse money regarding these projects,” Pong Ho Yin, a Hong- Kong based money manager at Allianz Global Investors, said in a Feb. 28 phone interview. “That will provide more confidence to the foreigners.”
Applications for investment incentives on new factories, plants and operations in Thailand more than doubled to a record 1.46 trillion baht last year, the government said on Jan. 10. Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co. boosted production capacity in Thailand during the past four months.
Earnings in the SET index will probably climb 28 percent in the next 12 months, versus 18 percent for MSCI’s developing- nations gauge, according to projections compiled by Bloomberg.
Many Thais “have had great success and spectacular returns by investing in companies with sound fundamentals such as strong earnings growth,” Sompong Cholkadeedamrongkul, a 60-year-old private investor in Bangkok, said by phone on Feb. 27. “There were several occasions that heavy selling by foreign investors gave me opportunities to buy shares of those companies at bargain prices.”
--With assistance from Sangwoo Kim in Hong Kong. Editors: Matthew Oakley, Darren Boey