Thailand’s stock market has been the best performer in Asia so far this year, climbing more than 25 percent, and analysts say there is room for further gains given the government’s infrastructure push over the next few years.
The Thai government is planning to spend more than 2.2 trillion baht ($71.1 billion) over the next seven years to build railways and roads and another 350 billion baht ($11.3 billion) on infrastructure to prevent a repeat of the devastating 2011 floods that dragged economic growth down to just 0.1 percent for the year. This spending, which will be partly financed by the private sector, will boost the Thai economy, analysts say.
“We look for government spending on the flood-prevention program and basic infrastructure to drive the Thai economy, at least in 2013,” said Nithi Wanikpun, analyst with Nomura in Bangkok. “We believe that banks (especially Bangkok Bank and Kasikornbank), building material manufacturers, and the construction sector are likely to benefit from the spending plans.”
Defensive sectors such as telecommunications and power generation should also benefit from an increase in investment, Nithi said, forecasting that the benchmark Stock Exchange of Thailand Index could gain another 10 percent over the next 12 months.
Investment bank Jefferies said in a report published on Monday that they expect Thailand equities to outperform its emerging market peers in Asia on the back of corporate spending.
Domestic consumption and corporate sector spending will reduce the country’s dependence on exports and lead to more balanced growth, say economists.
“One indication that Thailand may be participating in much more balanced growth is that the rise in wages is occurring alongside corporate investment,” Jefferies’ chief global equity strategist Sean Darby said in the report. “This ought to mean that the consumer boom is not likely to fade too quickly.”
Darby expects the Thai market to outperform Indonesia and the Philippines, and post single-digit returns over the next quarter. He favors banks as well as industrial companies, particularly industrial parks, he told CNBC.
According to Morgan Stanley economists, the rebound from near-flat growth last year should continue, underpinned by domestic consumption and investment. They believe that the new public-spending program will “lend a second leg” to the country’s post-flood recovery.
Data out on Tuesday showed exports in August fell a worse-than-expected 7 percent year on year on a slowdown in China and Europe. This has prompted the Thai Finance ministry to cut its GDP forecast to 5.5 percent from 5.7 percent.
The ministry said last week that exports will increase only 4.5 percent this year after climbing 16.4 percent last year.
—By CNBC’s Jean Chua.