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Confidence picking up as prices ease
Funds now flowing to banks, property sector
Bangkok Post – 18 August 2008
NINA SUEBSUKCHAROEN
There is some good news for disheartened investors because inflation is expected to start dropping soon as global oil and commodity prices also starting to slide, says Kongkiat Opaswongkarn, chief executive officer of Asia Plus Securities.
Asia Plus expects annual inflation to peak at 9.5% this month, up from 9.2% in July, before easing back to slightly above 7% in September, with the rate averaging 7.2% for the full year.
''The oil price is on the down trend globally, commodity prices are also on the down trend and the dollar seems to be a bit stronger, meaning people are becoming more receptive to the way financial institutions are able to raise capital. That is good news,'' he said.
In a climate where confidence is sorely tested, even the smallest positive developments will be very well received by people who have grown accustomed to bad news.
Nevertheless, there is no denying that Thailand faces serious internal problems, though Dr Kongkiat believes the government's six-month stimulus package does help relieve the pain felt by low-income earners.
''But of course we are banking on the fact that the cost of living will be in a controllable range.''
Even so, he says that the job market outlook remains difficult because Thai companies in general are becoming very cautious, especially sectors negatively affected by both economic and political problems. ''People probably have to struggle to perform to save themselves, to save their jobs.''
In the current scenario, defensive sectors will do well, among them electricity, water, mobile phones and export-oriented businesses.
''I think Thailand has actually been quite resilient in terms of export numbers, I think the growth is quite impressive despite the baht being strong in the early part of the year _ that didn't affect our export numbers,'' said Dr Kongkiat.
Also doing well are entertainment and retail, he noted.
''I think people have to entertain themselves regardless of the situation.''
As well, Dr Kongkiat sees sentiment toward the banking sector turning more positive as commodity prices have fallen. ''Banks and property are the sectors in which people put more money, reducing their holding in oil and gas, coal and energy-related stocks.''
This shift in the flow of funds is also linked to the strong results of some property companies in the second quarter, benefiting from the one-year tax reduction the government introduced in March, plus pent up demand.
However, Dr Kongkiat notes that high-end condominiums are not doing nearly as well as homes serving the lower end of the market, especially projects near train stations.
While interest rates are on their way up, Asia Plus expects a limited increase with the Bank of Thailand expected to raise its policy rate, currently 3.5%, at most by another 25 or 50 basis points by year-end.
''I personally don't believe in raising interest rates at this moment because [inflation is] not demand-driven,'' says Dr Kongkiat, echoing the views of many economists who believe the Bank of Thailand needs to tread cautiously.
''I think the best thing is probably to put more money in the pockets of the poor to make sure they are not starving and have money to spend.''
Dr Kongkiat advises investors to remember that amid all the bad news there is some good news.
''I think opportunities will always arise, if you invest in a negative environment you can get a lot of return if you are patient enough.''
It is worth noting that there are a lot of cheap stocks, among them well-managed companies that provide 7% to 8% annual returns with stocks trading at half their book value.
''It's better to invest in stocks than set up your own business and try to compete,'' he said.
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