The baht is expected to appreciate next quarter on optimism ahead of the general election and lower expectations of fast-paced rate hikes by the US Federal Reserve, says Kasikorn Securities (KS).
The anticipated fund inflows are poised to boost Thailand's stock market in the first quarter, according to KS.
Based on the historical record, the baht strengthens for 1-2 months before a general election takes place, said KS vice-president Prakit Sirivattanaket.
The local currency has depreciated 0.7% year-to-date against the US dollar, according to Reuters.
With lower inflationary pressure in the US, the Fed is not expected to embark on an aggressive interest rate normalisation, subsequently prompting foreign fund flows to return to emerging stock markets next year, Mr Prakit said.
KS also expects the US and China to reach a settlement of their trade row before March, thus boosting global economic growth and enhancing investment sentiment around the globe.
Despite the persistent global risk factors, KS is maintaining a positive view of the Thai equity market, with a 12-month forward target for the Stock Exchange of Thailand (SET) index of 1,766 points and an expected 12% total return.
The return of the SET index stood at 3.2% in November, with a forward price-to-earnings ratio of 15.23, according to the SET.
Foreign investors, meanwhile, were net sellers of local shares to the tune of 13.88 billion baht last month.
While some investors have grown more cautious on Thailand's weaker GDP growth in the third quarter, the stock market welcomes the softening economic momentum alongside subdued inflation, as these should inhibit monetary policy tightening by the Bank of Thailand, Mr Prakit said.
"The macroprudential measures for the property sector and a few rate hikes to accommodate the central bank's 'desired policy space', in our opinion, should be sufficient to control systemic risks without provoking too much tightening of domestic demand," he said.
Despite slower third-quarter GDP growth, the aggregate earnings of SET-listed companies were quite impressive in the period, up 21.8% year-on-year and 1.8% quarter-to-quarter, according to KS.
Softer global economic growth will help moderate key risk factors such as US interest rate normalisation, oil prices and the China-US trade war, Mr Prakit said.
Thailand's GDP growth is projected to expand by 3.8% and 4% for this year and next, according to KS.
Thailand delivered the best annual growth pace in five years of 4.9% in the first quarter of 2018, but the pace cooled to 4.6% in the second quarter and 3.3% in the July-September period.
The weaker economic performance in the third quarter prompted the government's think tank, the National Economic and Social Development Board, to downgrade its 2018 GDP growth forecast to 4.2% from the previous 4.2-4.7% range.
