BANGKOK, Thailand – Thailand’s stock market recovered from a steep morning decline to close higher on November 4, gaining 11.08 points as investors weighed the possible implications of the US midterm elections. Trinity Securities said Thai equities may face more limited downside risk than US shares, highlighting four stocks linked to falling bond yields and healthcare policy: EGCO, 3BBIF, BDMS and BH.
The Stock Exchange of Thailand (SET) index closed at 1,502.09, up 11.08 points or 0.74%, with trading value reaching 76,971.32 million baht. The market was highly volatile throughout the session. Heavy selling in electronics stocks, particularly DELTA, pushed the index down to an intraday low of 1,470.06, a loss of 20.95 points. Buying returned during the afternoon, lifting the index to a high of 1,504.05, up 13.04 points. The difference between the session’s high and low was 33.99 points.
Investors were also monitoring the US midterm elections. Democrats won control of both the House of Representatives and the Senate, a result that could influence the direction of US economic policy and financial markets worldwide.
Natchat Mekmasin, senior executive vice president of securities analysis at Trinity Securities, said the prospect of Democrats taking control of both chambers had been developing after the party made gains in several traditionally Republican states, including Texas, Kansas, Ohio and Iowa.
He said such an outcome could have been unexpected by financial markets, with asset prices not yet fully reflecting its potential implications.
US shares face possible pressure as fiscal policy comes under scrutiny
Natchat said Democratic control of Congress could put pressure on US equities by increasing congressional scrutiny of government spending and strengthening efforts to impose fiscal discipline. This could constrain proposals for economic stimulus through public spending and tax cuts.
However, greater emphasis on fiscal discipline could support bond markets in the United States and elsewhere by putting downward pressure on bond yields. Thailand’s 10-year government bond yield had recently fallen to 2.04%, its lowest level in three months.
Trinity advised investors to be cautious about US equities and global shares represented by the MSCI World Index, which could be directly affected by the changing political balance in Washington.
The brokerage also compared the earnings yield gap, which measures the difference between the earnings yield of equities and bond yields. It said the measure for US and global markets remained below its historical average, limiting their relative valuation appeal.
Thailand’s earnings yield gap, by contrast, had returned to its five-year average. Trinity therefore assessed that the Thai market’s downside risk could be more limited than that of US equities in the period ahead.
Trinity highlights three investment themes and four stocks
Trinity identified three investment themes that could benefit from the changing outlook. The first covers bond-like investments, particularly utility companies, real estate investment trusts (REITs) and infrastructure funds. Falling bond yields could make their dividend returns more attractive compared with fixed-income investments. Trinity named EGCO and 3BBIF among its preferred stocks in this category.
The second theme is healthcare. Trinity said hospitals and medical service providers could benefit indirectly from potential changes in US health policy. With greater influence in Congress, Democrats may be better positioned to oppose proposed cuts to Medicaid, the healthcare assistance programme for low-income people, and support the restoration of health insurance subsidies under the Affordable Care Act, commonly known as Obamacare. The brokerage highlighted BDMS and BH.
The third theme is clean energy. A stronger Democratic presence in Congress could help preserve tax incentives for clean-energy businesses and resist efforts to repeal or reduce existing support measures.
Trinity said that, despite continued volatility from overseas developments, lower share valuations had made parts of the Thai market more attractive. It recommended focusing on companies with specific supporting factors and potential benefits from falling bond yields and changes in US economic policy.
