Thai stocks, baht seen extending gains as economy rebounds

BANGKOK Tue Aug 31, 2010 1:21am EDT

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BANGKOK Aug 31 (Reuters) - Three months after bloody anti-government protests, Thailand's stock market is the best performer among Asia's big bourses and looks poised for more advances as foreign investors catch up with its strong economy.

Thai stocks .SETI are up 24 percent this year at a 34-month high. In contrast, the MSCI's measure of Asian stocks outside Japan .MIAPJ0000PUS is down around 4 percent.

Only tiny Sri Lanka .CSE has done better with a 66 percent rise this year, but its market is 14 times smaller than Thailand's and foreign investors there are net sellers.

Not so in Thailand. In the past five weeks, foreign investors have snapped up $630 million in Thai stocks, compared to $548 million in Indonesia .JKSE, where stocks are also performing strongly, up 23 percent on the year.

"Thailand's economy is doing much better than expected at the moment and the currency is quite stable, so we see Thailand as an investment destination," said Takahide Irimura, head of emerging-market research in Tokyo at Kokusai Asset Management Co, which manages about $61 billion of assets.

Analysts expect the stock market gains to continue, though at a slower pace. Ten brokerages surveyed by Reuters forecast a 3 percent gain in the SET index for the rest of the year, and a further 13 percent rise next year. [ID:nSGE67Q09U]

The foreign influx into Thai assets has also helped boost the baht BHT= by nearly 7 percent against the U.S. dollar so far this year, further sweetening investors' returns.

The baht THB=, already at a 29-month high, was forecast to rise a median 0.8 percent by year-end followed by a 2.6 percent rise in 2011.

The stock market gains began in the first quarter, when the index rose 15 percent on a $1.8 billion wave of foreign buying from mid-February to April 7, a day before Thailand imposed emergency rule to control anti-government protests.

The ensuing violence, which killed 91 people and wounded nearly 2,000 until a May 19 army crackdown, hurt Thailand's tourist industry and frightened foreign investors, who sold $2.1 billion of stocks from April 8 to July 22, causing a decline in the stock market and volatility in the baht.

Irimura said foreign investors now were aware what heightened tensions mean to Thailand's economy.

"From economic activity to corporate earnings, the impact was limited. The risk is priced into the market."

The economy, Southeast Asia's second biggest after Indonesia, grew 9.1 percent in the second quarter from a year earlier, better than expected given the violence, as surging exports offset lost tourism revenue. [ID:nSGE67M06A]

Exports are expanding in all sectors and markets but growing most to China. The Commerce Ministry has forecasts exports will rise 20 percent this year.

STRONG ECONOMY, FDI PICKING UP

Finance Minister Korn Chatikavanij has said the economy may grow 8 percent this year, a view shared by the International Monetary Fund. That would be Thailand's best performance since 1995 and the strongest pace among Southeast Asia's big economies.

"We've now seen that political violence didn't really have a strong impact on growth. It was mainly confined to tourism. Beyond that, export-related industries continued to do quite well," said Rahul Bajoria, a Barclays Capital economist.

Direct foreign investment and capital spending are also picking up, suggesting more gains ahead. Since June, Ford Motor (F.N) has announced a $450 million investment in a new car plant and Hitachi Ltd (6501.T) said it would spend $485 million on expanding output -- two of half a dozen new foreign investments.

"Thailand seems a little more resilient than other economies because it has been held back so long in terms of investment," said David Beller, head of equity research in Thailand at the Royal Bank of Scotland.

"A lot of the capital that exists in Thailand is old and in need of replacement. People can no longer delay investment."

Beller has recommended investors buy banking and consumer-related stocks. He likes Bangkok Bank (BBL.BK), Thailand's biggest lender, which he expects to benefit as companies expand capital spending. He also likes No. 2 lender Krungthai Bank (KTB.BK), the top provider of government loans.

"We are also shifting more weight into the property sector," Beller said, noting some developers were launching more projects and interest rates were expected to remain low.

In that sector, he likes Asian Property Development Pcl (AP.BK), which focuses on town houses. Its shares have risen 16 percent this year to trade at 7.8 times 2010 earnings.

Still, risks remain. Three bomb attacks in the past month in Bangkok, including a grenade that killed a man in a busy shopping area, are reminders of tensions simmering below the surface ahead of contentious elections expected next year.

Standard Chartered economists said in a report last week that while Thailand had shown resilience to short-term political shocks, its fluid politics -- underlined by 27 prime ministers, 18 constitutions and 24 coups in 78 years -- led to inconsistent economic policies that posed longer-term problems.

It cited weak infrastructure as one that could undermine longer-term competitiveness. (Editing by Alan Raybould)

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