The Stock Exchange of Thailand was one of Asia's best performers last year with a rally of almost 20%.
Local stocks remain a favourite investment asset class for securities analysts and mutual fund managers surveyed by the Bangkok Post. This, despite the fact that gains on the stock market this year will be lower than in 2016, as there is less room left for the market to rise and threats of uncertainties, external ones in particular.
RHB-OSK Securities
Thanadech Rungsrithananon, senior vice-president of research
"The SET index could hit 1,632 points in 2017, based on a five-year average P/E (price-to-earnings) ratio of 17 times and earning growth of 12%, as well as earnings per share (EPS) of 96 baht," says Mr Thanadech.
The brokerage house estimates that the SET index's earnings growth stood at 28% with EPS of 86.7 baht last year. Improving economic growth, to be underpinned by massive government spending and the tourism sector, will be a boon to the Thai stock market, he says.
Mr Thanadech says an oil price rebound would boost prices of other commodities including rice and rubber, adding that higher agricultural prices will increase farmers' income and lift household consumption.
Even though internal factors look benign, external risks, US president-elect Donald Trump's inwardly-focused policy and likely trade barriers, and the US Federal Reserve's potentially faster pace of rate increases this year, are escalating.
If Mr Trump manages to deliver what he promised during the election campaign, the world's largest economy is expected to grow stronger, but his protectionist trade policies could pressure China, Thailand's major trade counterpart.
Mr Thanadech says offshore funds will return to emerging markets, including the Thai stock market, if Mr Trump's policy works for the US, which in turn will benefit global capital markets.
Otherwise, investors may cash out on risky assets such as equities and shift to the US dollar. If this is the case, the SET index could slip to 1,440 points, the entry level for investors.
Energy, retail, construction and banking stocks are recommended to be included in investment portfolios.
Energy plays will swell if oil prices are stable or increase, retail stocks are expected to benefit from improving consumption following a pickup in commodity prices, while construction stocks will reap the benefits from massive state investment in big-ticket infrastructure projects.
Banking stocks are expected to become attractive, with lending set to expand as the country's economic recovery gains speed.
SCB Securities (SCBS)
Pornthep Jubandhu, senior vice-president for investment strategy
"The three big themes for 2017 are the global economic rebound, rising inflation and interest rate hikes. Hence, returns from risky assets including equities are set to beat those from fixed income. For commodities, oil will outpace gold," says Mr Pornthep.
The International Monetary Fund (IMF) forecast that the world's GDP will expand in a range of 3-3.5% this year, 0.2 percentage points higher than the estimate for 2016, and the US will lead in growth. But the brighter growth outlook could come with the price of higher inflationary pressures, along with a faster pace of interest rate increases in the world's largest economy.
Fed officials, after raising the interest rate target by a quarter percentage point in December's meeting, indicated that they could increase the Fed funds target rate three times in 2017. They also raised the forecast for future years to three rises in both 2018 and 2019.
The potential rate hikes this year are a threat to gold and stocks, says Mr Pornthep. Emerging markets could see capital flight prompted by US rate rises, but only a moderate capital outflow is expected in the Thai capital market due to the country's high current account surplus and the robust tourism sector.
For Thailand's policy rate, Mr Pornthep forecasts the Bank of Thailand's Monetary Policy Committee will stand pat on the 1.5% rate throughout this year, but it has upside risks.
German and French elections this year warrant monitoring as they could cloud the euro-zone bloc's outlook.
Mr Pornthep says it remains to be seen whether public investment in big infrastructure projects will be delayed due to internal uncertainties, which could affect construction stocks.
Growth and cyclical stocks including banking, construction and energy are expected to outperform, he says.
SCB Securities is optimistic that the SET index will likely reach 1,700 points.
BBL Asset Management
Peerapong Jirasevijinda, managing director and chief investment officer
BBLAM, which had 627 billion baht worth of assets under management (AUM) as of December, recommends a greater asset allocation toward stocks than bonds.
"Equity is expected to give better returns than bonds, so we recommend giving more weight to equity," says Mr Peerapong.
The Thai stock market is expected to rise but upside is limited as several positive factors including infrastructure investment, US economic growth and the country's general election slated for this year have already been priced in.
Mr Peerapong says the global stock market has also factored in uncertainties from the implementation of Mr Trump's policies, as seen by the massive capital flight from emerging markets after he won the presidential election. But fund flows are expected to reverse as these markets' fundamentals remain solid.
The EU's Brexit discussion, elections in major countries in the euro zone, US trade policy and the dollar's direction after Mr Trump takes the helm are risks clouding global stock markets.
Even though most institutional investors have a bearish view of bonds after a bond yield snapback, BBLAM unorthodoxly thinks that bonds are still attractive to some extent, as global financial markets remain awash in liquidity and bond yield rises will make a reversal after yields surge to a certain degree.
But bonds are expected to generate lower returns than equity.
US high-yield bonds are recommended for those who dare to take a risk to get higher returns, he says.
Mr Peerapong also gives some examples of investment asset allocation formulas for 2017.
Those aged 55 now and expect to have a life expectancy of 80 may need to take higher risks. Therefore, half of their investment portfolios should be put into equity, 40% in fixed income and the remaining 10% in alternative investments.
Those aged 40 with two children studying in elementary school should allocate 60% of assets to equity, 30% to fixed income and 5% each in alternative investments and gold.
For first jobbers, 80% of assets should be put into equity (40% in the local bourse, 20% in emerging markets and another 20% in other global markets), while the remainder should be put in fixed income, as they are still young and can take higher risks.
CIMB-Principal Asset Management
Win Phromphaet, chief investment officer
The four investment themes for the year 2017 are infrastructure, property investment, dividend stocks and technology, says Mr Win.
"Infrastructure investment will be the global mainstream approach. Citi Research expects that investment in infrastructure projects globally will amount to $3.5 trillion a year from 2016-20," he says.
For Thailand, government spending on infrastructure projects will be the major driving force for economic growth, so construction, building materials and property stocks are recommended for investors' portfolios.
Property-related investment is also recommended, as it can generate recurring income.
Even though the US interest rate is in an upward trend, the pace of increase is not expected to register a sharp spike and other major countries will still keep their policy rates at the rock-bottom level, Mr Win says, noting that returns from property investments are still attractive.
CIMB-Principal forecast that the Bank of Thailand's Monetary Policy Committee will keep its 1.5% rate on hold until at least the second half of 2017.
"The IRR (internal rate of return) of global REITs (real estate investment trusts) is expected at 6-7%, 5 percentage points above global government bonds, which are at 1-2%," he says.
According to his team's model, which traces back data for 10 years, dividend plays give better returns with lower volatility related to the SET100 index.
Mr Win projects that the SET index will reach 1,600 points this year, based on assumptions that GDP will grow 3.5%, local interest rates are still low, the baht and political situation remains stable, and earnings growth is at 12%.
A SET index at 1,500 points can be translated into a PE ratio of 14 times, the lowest among Thailand's neighbouring countries, he says.
Besides, the Thai stock market does not expect to be under heavy selling pressure from foreign investors as their shareholding is at a 12-year low of 29% after heavy selling over the past few years.
Meanwhile, the last investment theme suggested by CIMB Principal is technology.
"The world is now in the fourth industrial revolution era, when technology is changing rapidly in every sector. The internet, robotics, autonomous vehicles, 3D-printing, data storage and energy storage have disrupted traditional ways of living," says Mr Win. Technology shares have outperformed MSCI World over the past five years.
