Are Foreign capitals exiting the Thai stock market?

Credit: UN Women Asia and the Pacific

Foreign investors have been selling Thai stocks at a record pace, with net sales of nearly 100 billion baht worth of shares in the first five months of 2023, according to the Stock Exchange of Thailand (SET). The main reasons for this exodus are rising global interest rates, political uncertainty, weak corporate earnings, and a depreciating baht.

Rising global interest rates have prompted foreign investors to shift their funds from emerging markets to developed markets, where they can earn higher returns and face lower risks. The US Federal Reserve has raised its benchmark rate three times since December 2022 and signaled more hikes to come, as inflation and economic growth pick up in the world’s largest economy.

Political uncertainty has also weighed on investor sentiment, as Thailand awaits the formation of a new government after the May 14 election. The election results were inconclusive, with no party winning a clear majority in the lower house of parliament. The pro-military Palang Pracharath Party (PPRP) claimed the right to form a coalition government, but faced challenges from the anti-junta Pheu Thai Party (PTP) and the new Future Forward Party (FFP), which gained popularity among young voters.

Weak corporate earnings have reflected the sluggishness of Thailand’s economy, which grew by only 2.6% in 2022, below the government’s target of 4%. The fourth quarter of 2022 saw a sharp decline in profits for listed companies, especially in sectors such as energy, banking, tourism, and consumer goods. The coronavirus pandemic, which hit Thailand hard in early 2020, has also dampened domestic demand and exports.

These factors have eroded the attractiveness of Thai equities, which have lagged behind their regional peers in terms of performance and valuation. As foreign investors continue to sell Thai stocks, it remains to be seen how this massive outflow of foreign capital will impact Thailand’s economy in the long term.

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