By Fundsupermart Research Team

Thailand’s equity market, as represented by the benchmark SET Index, slid into the red in the second-quarter of 2017 (2Q17) by 1.7% in ringgit terms.

For the first-half of 2017 (1H17), the SET Index delivered a return of 3.3%, but well below returns of regional peers and developed markets.

This comes as Thailand’s economy grew 3.3% year-on-year (YoY) in 1Q, above consensus forecast of 3.1% and 4Q16 growth of 3%.

Domestic spending remained as a prominent driver of the economic on the back of higher farmer incomes and improved consumer confidence.

Sector wise, higher crop prices and improved crop yields helped the agriculture sector grow faster, while growth slowed in manufacturing and construction.

Exports demands for electronics and rubber-related products were robust on the back of global economic reco- very and higher oil price.

Earnings forecast for the SET Index was revised upwards by 0.9% over the 2Q led by better earnings prospect in the materials (1.4%) and energy (0.5%) sectors.

Consumer-related sectors namely Consumer Discretionary and Consumer Staples saw earnings forecasts downgraded by 0.2% and 0.3% respectively.

In the 1H17, Thai companies had their earnings forecast slashed by 0.4%, with most of the downgrades attributable to the industrials (-0.7%) and consumer staples (-0.4%) sectors.

As of July 13, 2017, the SET Index registered an earnings growth of 6.2% over the year and is expected to deliver earnings growth of 10.5% for 2018.

As widely expected, the Bank of Thailand (BoT) left its benchmark interest rate unchanged at 1.5% in July, the lowest level since May 2009.

The central bank noted there remains a need for the economy’s monetary policy to remain accommodative given growth in domestic demand continues to be gradual and “not yet sufficiently broad-based”.

Private consumption expanded on the back of improved farm income amid a pick-up in the country’s exports.

Non-farm income, however, did not benefit much from the recovery in the country’s exports, leading to an improvement in purchasing power that is not broad-based. While the BoT continues to be of the opinion that an accommodative monetary policy is required, it believes the economy’s growth outlook has generally improved further on the back of better external demand.

As of July 9, market expectations are for the Thai economy to grow 3.4% in 2017, up from 3.2% in 2016 and for consumer price inflation to reach 1.4%, which is within the central bank’s 1%-4% target range.

Going forward, we foresee domestic consumption to continue its modest recovery path and investment activities to pick up following the commencement of various infrastructure projects.

The disbursement of government funding for the mass rapid transit projects in 2H17 is likely to provide a boost to economic growth and act as a stimulus to both private and foreign investments.

The royal endorsement of the 2017 constitution in April has set the path for the next election, which provides clarity for the domestic political scene and may boost business confidence further.

As of July 13, the SET Index is trading at estimated price- earnings ratios of 15.4 times and 13.9 times for 2017 and 2018 respectively.

While there is little change to Thailand’s macroeconomic backdrop since we upgraded the nation’s rating back in December 2016, we are of the view economic development and social improvements remain on track and should continue to support earnings growth in the coming quarter.