Continuous rallies on the Stock Exchange of Thailand (SET) have produced euphoria among investors. But amid the bullish outlook, fears are transpiring whether such an upward trend will lead to an overheated financial bubble last seen over 20 years ago.
The SET closed at 1,726.67 points on Oct 16, the second-highest close after the record set on Jan 4, 1994.
The bourse hit an all-time high 23 years ago when it closed at 1,753.73 after briefly touching 1,789 at one point. But it tumbled significantly during the 1997-98 Asian financial crisis, falling to 214.53 points in August 1998.
Those days of doom and gloom have long since passed, but vivid memories linger on for individuals who lived through the tremor.
The recent run-up in stocks can be explained, said Tisco Securities chief executive Paiboon Nalinthrangkurn, by foreign funds shifting from stock markets in Indonesia and Vietnam to Thailand. The Indonesian and Vietnamese bourses rose about 15-20% earlier, leading some investors to take profits and seek more opportunities in the SET, which is considered a market laggard with a buoyant economic growth outlook.
High financial liquidity in the global markets and the low-interest-rate environment worldwide are also factors prompting foreign fund flows to channel into the Thai stock exchange, said Mr Paiboon.
TWO DIFFERENT SCENARIOS
Watchara Kaewsawang, better known as "Xia Pong", a 44-year-old investor with 25 years of investment experience in Thailand's stock market, said the present-day bourse is much different from 20 years ago in terms of market size, registered shares and investment environment.
"The stock market in 1993-94 was very expensive as the market's price-to-equity [P/E] ratio was around 30 times, but the P/E ratio is 16 times now," said Mr Watchara.
"There were many stocks, particularly banking stocks, back then trading at 100 times their P/E ratio, but few stocks trade at such high valuations now and most of them are limited to small-cap plays."
The health of financial institutions is also very different, as non-performing loans (NPLs) for banks and financial companies rose to over 50% of total portfolios in 1997, but current NPLs stand at 3%, he said.
Commercial banks' NPLs stood at 2.97% in the third quarter this year, up slightly from 2.95% in the previous quarter.
The rise of brokerage firms also signals a change. There were not many brokerage firms 20 years ago, instead only finance and securities companies, and a collapse in the financial sector became contagious because these companies were involved with both the financial and securities markets, said Mr Watchara.
He said present-day investors are equipped with greater financial knowledge and have access to sophisticated financial analysis tools.
Chaiyaporn Nompitakcharoen, executive vice-president and head of the non-institutional broking group for Bualuang Securities, said Thailand's stock market has at least three visible differences from years past -- market fundamentals, market behaviour and market sentiment.
For market fundamentals, Mr Chaiyaporn said the SET in 1994 comprised three main sectors: financial institutions (banks and finance and securities companies), property and communications. The three sectors contributed around 50% of the SET's market capitalisation at that time.
Now energy and commodities have combined to make up around 50% of the market capitalisation, led by PTT with the largest composition of 35%. Other commodities include oil, petrochemicals, coal, palm oil and rubber.
"Changes in market composition have caused the market to have greater fluctuation as global and regional factors have affected market movement," said Mr Chaiyaporn.
Although the performance of the commodities sector may have higher fluctuation, market sentiment does not depend on external factors as much as in the past because the revenue structure is domestic-driven, he said.
SUPPORTED BY FUNDAMENTALS
SET senior executive vice-president Santi Kiranand said the bourse's market capitalisation stands at 17 trillion baht, a three-fold growth from two decades ago. A rise in both the SET index and share prices reflects the stock market's fundamental strength and the bullish outlook of listed firms.
"There is no sign of any economic bubble and listed firms have low debt-to-equity [D/E] ratios, in stark contrast to the Asian financial crisis in 1997. Contrary to the crisis period, many listed companies have performed well and businesses have diversified into the global market and hedged against foreign exchange risk. This is why the SET will continue growing in the coming years," said Mr Santi.
The market has 530 listed firms and 2,055 securities.
The SET index has generated 11-12% return this year, with a dividend yield of 2.8% per year. The bourse's net profit in the first half was 517 billion baht, with 123 billion as dividend payment.
Listed companies are projected to generate a combined net profit of up to 1 trillion baht this year, he said.
Terdsak Taweethiratham, vice-president at Asia Plus Securities, said the SET index is supported by market fundamentals, in contrast to 24 years ago. At that time the market's P/E ratio was 31.2 times, with earnings-per-share (EPS) of 56.19 baht. At present, the SET index has a P/E ratio at 17.3 times and EPS of 101.36 baht.
For 2018, the bourse is projected to record a lower P/E ratio of 15.88 times, with EPS increasing to 110.4 baht, said Mr Terdsak.
"The rising SET index is supported by market fundamentals. However, when the bourse breaches 1,700 points, the market will have lower confidence because it is nearing an all-time record, which brings to mind the major crash back then. It will take time, but I believe people will get over this psychological barrier because current market conditions are different from 20 years ago," he said.
Voravan Tarapoom, chairwoman of the Federation of Thai Capital Market Organizations, said the SET index could finish above 1,700 points this year and will continue reaching new highs next year because of Thailand's economic growth momentum and SET-listed firms' net profits projected to continue increasing. Listed firms have strong financial fundamentals and low D/E ratios boosting investor confidence.
Equity has generated the highest return the past two years amid the low-interest-rate environment seen worldwide, she said.
"I have invested 80% in equities, of which 20% is invested in global stocks, with the remaining 20% invested in bonds and gold. The average return [on equity investment] is favourable at around 12-15% this year," said Mrs Voravan.
"The SET index stands around 1,700 points supported by market fundamentals, and the bourse will continue rising next year because of a good economic outlook.
"It is different compared with the index in 1994. At that time the bourse rose without fundamental support and listed firms had high recorded debt ratios. When the baht depreciated, listed firms' debt doubled. But now listed firms' financial condition is strong and Thailand's foreign reserves are high, with the baht value stable."
