New govt 'won't last long enough'

The Nation (29 November 2007)

SET rebound expected late March from capital inflows, says broker

A leading securities broker yesterday predicted the general election will not be the economic turning point many expect, because a new government will not last long enough to create stability.

However, Bualuang Securities deputy managing director Padermpob Songkroh said he expected a stock-market rebound late next March, because of capital inflows. He expects the Stock exchange of Thailand (SET) Index to peak at 1,146 points next year.

He said the December 23 general election would not give a big boost to the Thai stock market, because the new government would last for only one-and-a-half or two years. Given such a short term in office, it was unlikely the government would be able to proceed with mega-infrastructure projects, which would be delayed further.

"We predict the next government will not last long - not more than two years - and this will have an effect on construction stocks. Without government stability, construction firms, which need long-term business plans, cannot map out such plans," Padermpob said.

Despite his denial of an economic rebound based on government stability, the broker said capital inflow would spark a market recovery late next March.

The SET slumped 10 per cent from its peak of 915.03 points late last month, due mainly to a sell-off by foreign investors on fresh anxiety over the US sub-prime crisis.

Despite the sharp decline, many analysts have expressed hope that the election will be a turning point for the bourse.

The SET yesterday closed 0.3 per cent lower at 820.52.

Padermpob said a flow of funds was expected to return to Asian stock markets, including the SET, in the first quarter - assuming the return on US 10-year bonds falls to 3.4 per cent and that the interest rate no longer attracts investors.

"The capital flow has been shifted from Asian stock markets to US 10-year bonds, which offer higher returns than do securities, but at a lower risk. When the return on US 10-year bonds declines 0.5 per cent, it will trigger a flow of funds into Asian bourses again," he said.
He estimates the earnings of listed companies will rise about 25 per cent next year, compared with zero growth this year.