Bangkok--4 Oct--WEBER SHANDWICK Changes in local buying behavior is the main reason that the Thai market can rerate sustainably above its recent trading range. Also, low growth and political uncertainty is not likely to last through 2008 even though economic growth remains weak, according to Keith NERUDA, Head of Thailand Research at UBS. Neruda wrote in his recent report, Thai Equity Strategy (21 September 07), that local investors seem to finally be buying and supporting the market, which is good reason to believe that the Thai market can rerate above its recent trading range of 33 percent price-earnings (PE) discount to Asia. “Thailand’s market has been stuck in a trading range since 2004 banded between 15 percent and 30 percent upside to our bottom-up implied index target,” Neruda wrote. “Based on this analysis, the Thai market is now 2.3 percent above its theoretical trading band… the Thai market is also near the low end of its PE discount to Asia. At the beginning of 2004, the Thai discount was 10 percent but this has widened to 33 percent.” Neruda believes that the market is in the midst of quietly rerating above its historical trading range and that this rerating will continue into next year. According to Neruda, the key data point that points to changes in market dynamics is that local investors now appear to be supporting the market despite net foreign outflows. Since the beginning of July, the Thai market has risen 5 percent despite foreign net outflows of Bt7.4bn during the same period. However, calling for a Thai market rerating is not without its risks, says Neruda. He says economic growth remains quite weak, especially private consumption and investment, which grew by only a combined 1.4 percent in Q2 of 2007 in nominal terms. “We unfortunately do not have convincing evidence of a recovery in domestic demand and the political landscape remains ‘messy’,” wrote Neruda. “However, bottom-up upgrades to Thai stocks has increased the implied index target from 827 at the beginning of April to 922 currently. We are also seeing signs of vehicle sales turning slightly positive after over a year of year-on-year declines. We take this as a lead indicator of a nascent recovery in private consumption.” Consumer confidence about the future are at a low even though there is clearly no systemic risk in Thailand today that compares with the situation ten years ago. Neruda added: “Although we are reluctant to predict a ‘pre-election rally,’ we do think confidence will get a bump up from the election and also expect the next government to be more positively perceived.”