Market analysts expect the US Federal Reserve to hike rates by 75 to 100 basis points at its July meeting to curb US inflation, which rose to 9.1% in June.
Meanwhile, the Thai Investor Confidence Index (ICI), which anticipates market conditions for the next three months, was down 23.1% from the preceding month to 64.6 in June, causing the index to enter bearish territory for the first time in 10 months.
The decline in confidence is primarily attributed to growing concerns over the impact of interest rate hikes.
Kobsak Pootrakool, chairman of the Federation of Thai Capital Market Organizations (Fetco), said the US reported higher than expected inflation numbers in June, stoking fears of a recession as investors expect the Fed to move forward with more aggressive rate hikes at its upcoming meeting on July 26-27 to rein in inflation.
Based on Fed Fund futures, roughly 67% of investors predict the Fed will raise interest rates by 75-100 basis points at the next meeting.
He said US inflation will peak in the third quarter, but even a hike of 300 basis points this year may not be enough to curb persistently high inflation.
The Fed is expected to continue with aggressive hikes in the third quarter before slowing down in the fourth.
Mr Kobsak said the Fed's rapid interest rate hikes will cause intense volatility in many emerging markets around the world and may exacerbate downturns in several economies such as Sri Lanka, which is mired in an economic crisis.
However, he said the interest rate hikes may benefit some Thai industries such as tourism, exports and agriculture because they will cause the baht to weaken further.
According to Fetco's ICI survey, the most supportive factors for the Thai stock market for the next three months are the recovery of the tourism sector, more capital inflows and the Fed's monetary policy tightening to tackle inflation.
However, investors are concerned more aggressive rate hikes may lead the global economy into a recession, while the spread of Omicron BA.4 and BA.5 variants could hamper an economic recovery.
In June, the SET Index moved in a narrow band of 1,557.61 to 1,660.01 points due to concerns over global inflation and the risk of a recession, according to analysts.
Foreign investors recorded net sales in June for the first time in seven months, tallying outflows of 30 billion baht after posting consecutive net purchases since December 2021.
However, the Thai stock market continued to receive support from government measures, such as efforts to alleviate the impact of rising energy prices as well as tourism stimulus measures.
External factors to monitor include the Fed's handling of inflation, uncertainties from the Ukraine-Russia war, which remains a major economic risk for the energy sector in Europe, and China's economic outlook.
For domestic factors, Fetco recommends following the Bank of Thailand's direction for Thai interest rates, while the Thai inflation rate is rising due to surging global energy and domestic raw material prices. The outbreak of BA.4 and BA.5 variants is another concern.
