(Bloomberg) -- After attracting $625 million so far in June -- set for the biggest net monthly foreign-fund inflows in almost three years -- a slowing economy and decline in corporate profit growth may prompt overseas funds to shun Thailand’s stock market.

Southeast Asia’s second-largest economy expanded at the weakest pace since 2014 in the first quarter as exports, tourism and public investment slowed. Already $20 billion of spending on transport and logistics projects has been delayed because of a three-month impasse in forming a government. Growth may ebb to 3.6% in 2019 from 4.1% a year earlier, according to the median estimate of analysts in a Bloomberg survey.

“Foreign inflows are unlikely to be sustained as the main focus is now on the slowing economy,” said Win Phromphaet, the Bangkok-based chief investment officer at Principal Asset Management Co., which oversees about $4.8 billion of assets in Thailand. “Thai equities’ valuations will still be stretched as the weak economy will affect companies’ earnings growth.”

International funds, mostly index trackers, increased purchases of the nation’s stocks as MSCI Inc. announced the inclusion of non-voting depository receipts in its free-float calculations on May 28.

And while some funds continue to boost Thai holdings to match higher MSCI weightings, a clearer political outlook has also buoyed foreign buying, Pakorn Peetathawatchai, Stock Exchange of Thailand president, said June 6.

The return this month of junta leader Prayut Chan-Ocha as prime minister of an elected government eased concern about political unrest following a disputed general poll, sending the benchmark SET Index up 3.3% in June -- poised for its best monthly return since January. Still, the new administration has a razor-thin majority that may make it difficult to pass meaningful laws.

Weaker Profits

Thai company earnings in the second quarter are likely to deteriorate along with weaker economic growth, according to a report Tuesday from Bualuang Securities Pcl, the brokerage unit of Thailand’s biggest commercial bank.

Earnings at most locally-listed companies in the January-March period slid 9.3% from a year earlier, led by energy, petrochemical and commerce companies, according to a stock exchange statement dated May 27.

The nation’s shares are also trading at a historically higher average price-to-earnings ratio, said Mark Matthews, head of research at Bank Julius Baer & Co. in Singapore. Government spending has been “extremely weak” so far this year, and investors are hoping for a pickup, he said.

Thailand’s key stock index trades at about 15.7 times 12-month forecast earnings, compared with an average 15.5 multiple over the past five years, according to data compiled by Bloomberg.

To contact the reporter on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net

To contact the editors responsible for this story: Sunil Jagtiani at sjagtiani@bloomberg.net, Margo Towie, Divya Balji

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