The Investor Confidence Index (ICI), which anticipates market conditions for the next three months, was at 83.91 in May, down 12.1% from the previous month on concerns over the Federal Reserve's interest rate hikes and a spike in infections as the country reopens.
Despite the drop, the ICI remains in the neutral zone as investors expect a domestic economic recovery and revival of the tourism industry to boost investment.
Kobsak Pootrakool, chairman of the Federation of Thai Capital Market Organizations, said the most attractive sector is tourism and leisure, while the least attractive sector remains fashion.
The strongest supporting factor is the prospect of a tourism recovery, while the major impediment is the Fed's hawkish monetary policies.
"The May survey results show retail investors' confidence rose 7.1% to 105.32. Proprietary traders' confidence is unchanged at 75, while local institutional investors' confidence is down 2.8% to 82.61," said Mr Kobsak.
"Foreign investors' confidence retreated 40% to 60."
During the first half of May, the SET Index tracked declines in global benchmark indices as unease over the Russia-Ukraine war led to expectations of rising inflation in stock markets across the globe.
The local benchmark was also pressured by worries of a slower than expected global economic recovery, he said. However, the index rebounded in the latter half of the month thanks to better than expected earnings results of listed companies, prospects of an economic recovery and foreign investors' net purchases.
Foreign investors recorded net buying of 20.9 billion baht in May and 139 billion for the first five months this year.
The SET Index closed at 1,663.41 at the end of May, down 0.2% from the previous month.
According to Mr Kobsak, external factors to monitor include the prolonged Russia-Ukraine war and the energy crisis, which has triggered rising inflation in several countries, the global food crisis, the Fed's moves to tackle inflation, and China's zero-Covid policy, which has drastically slowed the Chinese economy.
Locally, eyes are on the Bank of Thailand's monetary policy as the market anticipates a rate hike sooner than previously expected. Internal factors to monitor include the government's relief measures to help ease the rising cost of living and the recovery of the tourism industry as Thailand fully reopens for visitors in June, he said.
KTBST Securities has a positive view on banking stocks as it expects the Monetary Policy Committee to raise interest rates in the second half this year. As a preliminary assessment, every rate increase of 0.25 percentage points will translate into 3-4% upside in banks' earnings forecasts, with large banks, including Bangkok Bank, Krungthai Bank, Kasikornbank and Siam Commercial Bank, benefiting directly from the hike, said the brokerage.
KTBST continues to overweight commercial bank stocks as it views the prices of these stocks as laggard. The brokerage's top pick is KBANK with a target price of 190 baht per share, citing the bank's focus on digital business and its strong market position.
