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Morgan Stanley's current target for the MSCI Thailand (USD) index implies 12% upside through 2013.
What's new: MSCI Thailand local currency index has corrected 7% in the past week. We believe the correction has been driven largely by panic selling resulting from unwinding of speculative retail trade as retail brokers have begun demanding higher cash collateral and margin from retail investors to rein in the recent rise in speculative activity.
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Where we differ: Investors are also increasingly concerned about the potential imposition of capital controls by the Bank of Thailand to rein in capital flows. We believe that BoT will continue to liberalize capital outflows if pressures on liquidity inflows/currency appreciation persist rather than imposing capital controls as it did in 2006. The narrowing of Thailand's BoP surplus from an average 6.9% of GDP in 2007-11 to 1.4% in 2012 is likely to dissuade BoT from imposing capital controls, and despite the recent rise in political noise, we see a high probability that Thailand will be able to achieve political reconciliation in 2013.
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What's next: Thailand's fundamentals remain intact. Visibility of investment-led growth has increased with the recent Cabinet approval of Baht 2 trillion in infrastructure spending over seven years. Consensus expects MSCI Thailand companies to report 19.7% earnings growth in 2013, amongst the best in the region.
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Valuations are reasonable: Considering strong growth visibility for 2013 and high RoE, we find valuations reasonable. Based on our recent bottom-up analyst recommendations, we are replacing Bangkok Bank with BAY and MINT with CP All in our Thai Focus List.
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Investment conclusion: Although we recently downgraded Thailand from our most preferred ASEAN 3 market in favour of Indonesia, we remain positive on the Thai market and believe that the recent correction is overdone and presents a good entry opportunity. Our current target for the MSCI Thailand (USD) index implies 12% upside through 2013.
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Source: Morgan Stanley Research
