JP Morgan upgrades Thai equities on rebound in Chinese tourism

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JP Morgan upgrades Thai equities on rebound in Chinese tourism

JP Morgan upgrades Thai equities on rebound in Chinese tourism


Visitors to Thailand from China could rebound to two-thirds of pre-pandemic levels and contribute to tourism receipts worth 6 % of Thai GDP in 2023, the bank says

J.P. Morgan has upgraded its rating of Thailand’s stock markets to “overweight” from “neutral” on the prospect of a return of Chinese visitors to the country, the firm said on the sidelines of the annual J.P. Morgan Thailand Conference held in Bangkok this week.

According to the bank, a recovery in Chinese tourism for Thailand – which was the most popular destination for Chinese outbound travellers after Hong Kong and Macau in 2019 – will have a positive impact on local business sentiment and consumer confidence, as well as offset the effects of a global economic slowdown.

“China’s earlier-than-expected reopening is a key catalyst to our bull-case scenario for Thailand equities,” said Marco Sucharitkul, Senior Country Officer of J.P. Morgan Thailand. “With about 11 million tourists in 2019, China accounted for around 29 % of Thailand’s incoming visitors before the pandemic. We now forecast up to 26 million Chinese tourists arriving in Thailand in 2023, which is 65 % of 2019 levels and slightly higher than the government projection of 25 million.”

JP Morgan upgrades Thai equities on rebound in Chinese tourism
JP Morgan upgrades Thai equities on rebound in Chinese tourism
JP Morgan upgrades Thai equities on rebound in Chinese tourism

“This would translate into US$ 39 billion worth of tourism receipts this year, doubling the amount in 2022 and equivalent to 6 % of the country’s GDP,” Sucharitkul added.

The pickup in non-resident spending will in turn boost consumer confidence, which remains at “way below” the long-term average levels, the bank says. “In addition, the government recently approved the ‘Shop Dee Mee Khuen’ tax rebate scheme – which offers up to 40,000 baht in tax deductions for goods and services purchased between Jan 1 and Feb 15, 2023 – will further boost spending in the short term,” said Kae Pornpunnarath, head of Thai equity research for J.P. Morgan.

J.P Morgan has a base target of 590 for MSCI Thailand and a 1,800 target for the SET (Stock Exchange of Thailand) in 2023. In terms of sectors, the bank remains overweight on Thai consumer staples, consumer discretionary, and healthcare.

“We think there is significant pent-up demand for outbound travel from the Chinese population,” said Sucharitkul. “Our baseline forecast expects the resumption of cross-border travel with the rest of the world to start by the late first quarter, and resumption of large-scale international travel to start around mid-year and international flights steadily recovering to 50 % of the pre-pandemic level going through the second half of 2023.”

Cooling inflation, baht and elections boost

Aside from a boon provided by Chinese tourists, J.P. Morgan expects other factors to bolster Thai stock markets’ performance in 2023, including slowing inflation due to lower energy prices and tame wage growth that could improve profit margins for Thai corporates.

To head off rising inflation, the Bank of Thailand has raised interest rates by 75 basis points since August 2022, bringing the benchmark rate to 1.25 %. J.P. Morgan expects two more 25 basis-point hikes this quarter, bringing the terminal rate to 1.75 %.  

As result, inflation has begun to cool, with J.P. Morgan expecting the headline consumer price index to fall to 3.3 % by the end of 2023 from 6.3 % in 2022. “The falling input costs are expected to particularly help Thailand’s food and beverage producers and utility companies, which had limited avenues in 2022 to pass through rising costs,” said Sucharitkul.

Meanwhile, the strength in the Thai baht – supported by an improvement in tourism receipts and reduced freight costs that helped Thailand’s current account move into surplus last year – is expected to continue in tandem with a recovery in tourism. “Our view is that strong currency should enhance returns for equity investors,” said Pornpunnarath.

According to J.P. Morgan, Thailand’s general elections in May could provide a short-term boost to the stock markets. Based on the bank’s historical analysis, median returns for Thai equities in the three-month run-up during the past 12 Thai elections were approximately 5 %, with the electronics, energy, food & beverage and commerce sectors tending to outperform the broader market.  However, the gains have tended to normalize in the medium term.

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