The December 13-14 FOMC meeting is fast approaching and the Fed funds rate is expected to be bumped up at least 25 basis points from 0.5 per cent. It seems that there’s more concern over capital outflows from the Thai bourse, periodically pressuring the SET Index. Here, two factors need consideration – next year’s direction of the Fed funds rate and foreign capital movement in the Thai stock market.
If the Fed funds next year increases by 25 basis points to 0.75 per cent in this month’s meeting, the real interest rate is still nearly minus 1 per cent, based on US inflation of 1.6 per cent in October. The discrepancy seems to be a gap for more rate hikes, so it’s possible to see three to four US rate increases over the eight FOMC meetings next year.
Thailand’s policy rate is 1.5 per cent. Based on the country’s economic recovery and inflation, no rate increase is expected and the baht will likely weaken against the US dollar. Principally, capital will move into US dollar-denominated assets.
In this environment, the likely outflows |of foreign capital are not expected to fuel much pressure on the SET Index, as foreign holdings of Thai stocks in the Thai stock market are now lower than normal. Foreign holdings including those through NVDRs of Thai stocks stay at only 30.2 per cent, a record 10 year low. Its highest in 2013 was 37 per cent.
Foreigners’ net purchases in each period are also low. So far this yeart, their net |accumulative purchases are below Bt80 |billion, compared to the peak of more than Bt400 billion. Besides, the SET Index, one month earlier, found foreign investors becoming net sellers of Thai stocks nearly every day. Their net sales were about Bt43 billion. However, the SET rose above 1,500 points again.
It’s believed that foreign capital will |likely flow out of the Thai bourse for the rest of this year, however, thinning gradually. That could limit pressure on the SET. On the other hand, local institutional investors will likely pour more funds into the Thai stock market, given the time frame of LTF/RMF purchases.
Other interesting factors that could make alternatives for investment include fiscal stimulus likely building up positive impacts on several groups extending from construction (UNIQ) to retail (BJC), and oil prices rising to benefit energy and petrochemical stocks (PTT and IVL).

Prakit Sirivattanaket
Vice president
Kasikorn Securities

The government has launched relief measures for the tourism industry, aiming to attract foreign investors, starting from a waiver of the Bt1,000 visa fee and reduction of the Bt1,000 visa fee at specific immigration posts from December 1-February 28.
A tax deduction has also been introduced for spending on tourism-related services and hotel accommodations throughout this month.
Given the bigger amounts and longer periods of such measures, the tourism industry is expected to gain to a certain level after the sluggishness amid the suppression of illegal zero-dollar tours and national mourning for the late King Bhumibol. Hotel (ERW MINT CENTEL) and airport (AOT) groups will directly benefit. Low-cost carriers such as AAV will gain more advantages than full service providers like BA or THAI.
Short-term positive sentiment is anticipated for speculation in sluggish hotel and air-freight groups. Late last year, the tourism industry dramatically rose 2.5 per cent in December before moving in negative territory of 0.9 per cent on profit taking late in the month due likely to its sharp rises of 9.9 per cent since November 2015.
Last December, ERW topped the list, climbing 6.7 per cent, however, at the close, narrowing its gain to only 1.9 per cent. Similarly, CENTEL peaked at a 6.6-per-cent gain before profit-taking and then fell 2.8 per cent. MINT edged up 2.7 per cent before dropping 1.4 per cent.