The Thai stock market may plunge to a bear market in the second half of the year as the widening policy rate gap between the US and Thailand could trigger outflows, according to Asia Plus Securities (ASPS).
The brokerage sees China as an attractive investment destination as the government is poised to ease lockdowns and its regulatory crackdown on tech companies.
The analysts point out that the upcoming months will be a difficult time for investors and the US is likely to enter into a technical recession, or two consecutive quarters of negative growth of GDP, as inflationary pressures are likely to continue.
Therdsak Thaveeteeratham, an analyst at ASPS, said Thailand will not go into technical recession in the second quarter as the country recorded GDP growth of 1.1% in the first quarter.
However, he warns that if the interest rate gap between the US and Thailand were to increase, the baht would lose value as funds flow out of the country in the near future.
Mr Therdsak said the interest gap between the two countries in the past averaged 1.06% with Thailand commonly having higher interest rates, but the gap is currently at -1.25% after the US Federal Reserve implemented rate hikes.
According to the FedWatch Tool, an analysis platform, the gap is also likely to expand as it predicts a 92% chance that the US Fed will raise interest rates by 75 basis points in July.
Most stock markets are bearish as global indices have dropped by over 20% from their 52-week high, including the Nasdaq that dropped 28.3%, MSCI Asia ex Japan that dipped 25.7%, and MSCI World Index that lost 20.1%.
The Stock Exchange of Thailand shed 9.4% in the same period.
For domestic stocks, ASPS recommends stocks that will benefit from the country's reopening such as Central Retail Corporation (CRC), Bangkok Expressway and Metro (BEM), and Central Plaza Hotel (CENTEL).
They also suggest considering stocks that will fare well despite the baht's depreciation, including Charoen Pokphand Foods (CPF).
For foreign investment, ASPS and multiple other economic research institutions such as Morgan Stanley and J.P. Morgan suggests Chinese stocks as the markets are expected to benefit from multiple supportive factors, including the government's easing of its lockdowns and tech crackdown.
China is also one of the few countries to have lowered interest rates.
For Chinese stocks, ASPS suggests the travel agency Tongcheng Travel (780-HK), the solar panel manufacturer LONGi Green Energy (601012 CH) and the electric vehicle company BYD (1211.HK).
