Global financial services firm J.P. Morgan has upgraded its rating for Thailand's stock markets to overweight from neutral because of returning Chinese tourists, with the SET Index forecast to hit 1,800 points this year.
The recovery of Chinese tourism will boost business sentiment and consumer confidence in Thailand, while offsetting the impact of a global economic slowdown, said Marco Sucharitkul, senior country officer at J.P. Morgan Thailand.
"China reopening earlier than was expected is a key catalyst for our bullish outlook for Thailand equities," he said on the sidelines of the company's annual conference in Bangkok.
With roughly 11 million arrivals recorded in 2019, China accounted for 29% of Thailand's incoming visitors before the pandemic. The bank expects up to 26 million foreign arrivals in Thailand this year, which is 65% of the tally in 2019 and slightly higher than the government projection of 25 million, Mr Marco said.
That arrival total would translate into US$39 billion worth of tourism receipts this year, double the amount generated in 2022 and equivalent to 6% of Thai GDP, he said.
The increase in non-resident spending will in turn boost consumer confidence, which remains "way below" long-term average levels, the bank said.
Moreover, the recently approved "Shop Dee Mee Khuen" tax rebate scheme, which offers up to 40,000 baht in tax deductions for goods and services purchased between Jan 1 and Feb 15, will further increase spending in the short term, said Jakkapun Pornpunnarath, J.P. Morgan's head of Thai equity research.
J.P. Morgan set a base target of 590 for the MSCI Thailand and 1,800 for the Stock Exchange of Thailand this year. In terms of sectors, the bank remains overweight on consumer staples, consumer discretionary, and healthcare.
China's outbound travel is likely to resume in the first half of this year following the opening of cross-border travel without quarantine on Jan 8, said the bank.
"We think there is significant pent-up demand for outbound travel among the Chinese population," said Mr Marco. "Our baseline forecast expects the resumption of cross-border travel by the late first quarter, with large-scale travel starting around mid-year. International flights should steadily recover to 50% of pre-pandemic levels in the second half."
Another factor that should bolster Thai stock markets' performance in 2023 is slowing inflation as energy prices decline, according to J.P. Morgan. The Bank of Thailand has raised interest rates by 0.75% since August 2022, taking the benchmark rate to 1.25%.
J.P. Morgan expects two more 25-basis-point hikes this quarter, bringing the benchmark rate to 1.75%, while the headline consumer price index would fall to 3.3% by year-end, from an average of 6.3% in 2022.
Meanwhile, the baht is expected to stay strong in tandem with a recovery in tourism, with Mr Jakkapun indicating a strong currency should enhance returns for equity investors.
