CIMB Thai Bank (CIMBT) advises business operators to secure low financial costs, as interest rates will likely rise in the next two years, in line with the global economic recovery.
Bunluasak Pussarungsri, an executive vice-president and head of research, expects Thailand's policy rate to increase in the next two years, in accordance with the US Federal Reserve's rate and the global economic rebound.
The government's 2-trillion-baht megaproject investment plan will also affect the fiscal budget and the current account surplus of 1-2 billion baht.
"Under the scenario, both banks' loan rates and long-term bond yields will increase. Therefore, local business operators who have investment projects in hand should lock low financial costs now from any funding sources," Mr Bunluasak said.
For the remainder of the year, however, the Bank of Thailand may reduce its policy rate by 25-50 basis points from 2.5% to support growth in the slower economy.
CIMBT has revised down its gross domestic product (GDP) growth projection from a range of 4.5% to 5% to one of 4% to 4.5%, mainly due to a deceleration in domestic consumption, investment and exports.
The research house forecasts Thailand's 2013 export growth will be 5%, far lower than the government's target of 12%.
Mr Bunluasak expects the Fed will start to cut quantitative easing (QE) from 2015, later than the Fed's plan to do so at the end of this year or early next, as the US economy remains fragile.
The US is expected to fall short of its GDP growth projection of 2.6% to 2.7% and unemployment of 6.5% this year, he said.
Therdsak Thaveeteeratham, the head of research at Asia Plus Securities, said Thailand's stock exchange is in transition from being driven by capital fund flows to earnings.
"The market will trim an excess price-to-earnings (P/E) ratio during the transition period. This will cause the market's high fluctuation before a rebound by companies' earnings," said Mr Therdsak.
Thai shares have been driven up by foreign fund flows since 2009. Foreign net buys worth 180 billion baht pushed the market's P/E ratio to its highest level at 18 times.
The P/E ratio fell to 14 times, with a foreign net sell of 80 billion baht year-to-date as a result of the Fed mentioning a plan to tamper with the QE programme.
"At present, the market is trading at the normal P/E range of 12-14 times. The SET index is expected to be in a range of 1,350 to 1,570 points," said Mr Therdsak.
He said his main concern is not foreign sell-offs but "over-owned" local institutional investors whose sell-offs will affect the index.
Chaiyaporn Nompitakcharoen, the head of research at Bualuang Securities, agreed Thailand is no longer driven by foreign fund inflows and said listed firms must quickly improve performance to draw investors' attention.
Shares of CIMBT closed yesterday on the SET at 1.06 baht, down one satang, in trade worth 1.47 million baht.
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Writer: Somruedi Banchongduang & Darana Chudasri