The market has largely priced in inflation jitters, we believe, and has shifted focus to the risk of slowing global economic growth. A temporary pullback is expected, which would open an alpha opportunity. Looking to 2H22, we expect stronger earnings growth (a low 3Q21 base and tourism high season in 4Q22) in tandem with faster GDP expansion. That recovery should attract foreign fund inflows. We prefer the following plays: 1) inflation hedges, 2) post-COVID normalization, and 3) faster earnings growth in 2Q-3Q22 (with clear earnings visibility and price discounts).
Through the eye of the storm
Although Thailand marked a 13-year Inflation high for May (core inflation was only 2.28%), crude prices are now steady-ish, so we expect inflation to peak sometime in 3Q22, then start easing. In any case, the market has largely priced in the inflation jitters, we believe, and will eventually transition to anticipating accelerating GDP growth. But in the meantime, price pressures will dampen macro-economic conditions and earnings prospects until headline inflation eases. Thai bond yields have risen somewhat this year, limiting the scope for upside to Thai equities for the moment.