Brokers offer glum outlook

Political conflicts seen peaking in June

Local investment sentiment will continue to be weak due to growing political uncertainties, which are expected to peak by mid-year, according to local securities analysts. Supavud Saicheua, managing director of Phatra Securities, said political risks were rising and likely to peak around June before concerns about internal conflicts within the Surayud Chulanont government and the drafting of the new constitution would begin to ease.He said in addition to political uncertainties, market confusion over policies such as the revised Foreign Business Act and the Bank of Thailand's 30% reserve rule on foreign inflows continued to weigh on the market.

''Before things get better, the stock market will continue to decline. However, foreign investors, who believe there would be a general election at the end of this year, have already started buying Thai shares,'' he said yesterday.

Thai stocks are undervalued by about 30% to 40%, Dr Supavud said, while dividend yields are the highest in Asia. But the unsolved political uncertainty has cut significantly the attractiveness of the Thai bourse.

Dr Supavud added that interest rates would continue to fall through the end of the year, with the central bank likely to cut rates by at least another quarter point at its next meeting on May 23.

Poranee Thongyen, a vice-president of Asia Plus Securities, said the government was aware of the need to boost consumer confidence and was expected to soon issue new stimulus measures to spur grassroots development and the property sector.

''Currently, local interest rates have fallen at a slower pace than inflation. So there is a high chance that the central bank would further cut the policy rate over the next six months to spur economic activity,'' she said.

''However, the impact from the lower rates will be seen six months after the reduction. I'm afraid that the economic growth this year will be less than 4% and the central bank will have to revise down its current projection of 4% to 4.5%.''

Dr Supavud said Phatra Securities last month already revised down its growth forecast to 3.7% from 4.5%.

''I'm worried about the future. We have set an eye on exports, which is the key growth engine, but we will have problems in the long run if we don't see higher private investment,'' he said.

Dr Supavud said the baht was expected to appreciate in the near future, while the global economy would continue to slow, both boding ill for Thai exports.

Global economic growth this year is projected at 4%, with Asia ex-Japan rising by around 7%.

Dr Supavud suggested investors to carefully evaluate the situation and selectively invest in some stocks, which would pick up and grow sustainably in the next two to three years when everything was all settled.
Mrs Poranee said Thai shares had high risk premiums and earnings per share were predicted only at 0.3% this year and 12.9% next year. Conservative investors who dare not invest in stocks should consider property funds, some of which generate yields up to 8%, she said.