Thailand strategy:Three themes for 2017

Private sector headwinds remain

Elevated household debt/GDP and low capacity utilisation remain headwinds forthe private sector, leaving the onus on the government and external sectors tosupport growth again in 2017. Our expectations for a steepening Thai yield curveled by rising US rates (we forecast a 25bp hike in Fed Funds rate in December2016, followed by two further 25bp hikes per annum in 2017and 2018) implyPER multiples are capped and could compress. Meanwhile, the SET index at1,495is only 4% below its 2016high, and we view the market as fairly valued(9% upside to our end-2017SET index target of 1,625, projected 12-month TSRof 12%). We recommend positioning a Thai portfolio for exposure to threethemes in 2017: global cyclicals, rising rates/steepening yield curves and qualitysustainable growth.