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Thailand has become the most expensive stock market in Asia, threatening its prospects for additional near-term gains and foreign buying.

The nation’s benchmark SET Index trades at 19.4 times analysts’ one-year earnings estimates, a record high, amid a strong rebound from the coronavirus selloff. In the entire Asia Pacific area, only Australia and New Zealand are more pricey than Thailand, with MSCI Inc.’s main regional benchmark trading at about 16 times.

The SET Index has gained 40% from its March low, trimming this year’s decline to 8.9%. Foreign investors have sold a net $5.9 billion in Thai stocks in 2020, though they’ve bought about $165 million so far this month.

“Investors should begin partially reducing their holdings of Thai equities,” said Vathan Jitsomnuk, an investment strategist at Country Group Securities Co. “Optimism about the return of large foreign fund inflows may be disappointed because of Thai equities’ expensive valuations to other markets.”

Southeast Asia’s second-biggest economy is reopening businesses amid a drop in new virus infections, fueling investor optimism about an earnings recovery. Meanwhile analysts have cut their average 12-month forward earnings per share estimate for SET companies by about 28% since the start of the year.

The nation’s economic recovery from its worst recession in more than two decades will take much longer because the main growth drivers -- tourism and exports -- are unlikely to return to normal levels any time soon, Arthid Nanthawithaya, chief executive officer of Siam Commercial Bank Pcl, said Monday.

Still, Country Group says the “positive momentum” in global equity markets may help fuel additional gains in Thai stocks despite the valuations.

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