Global markets have spent the past month navigating a challenging combination of rising bond yields, inflation concerns and geopolitical uncertainty. Persistent worries that inflation could reaccelerate led investors to sell US Treasuries, pushing the 30-year Treasury yield to its highest level in nearly 19 years and the 10-year yield to its highest since January 2025.
Expectations for US Federal Reserve policy have shifted, with markets now assigning a 42% probability of an interest rate hike in December compared with almost none a month earlier. Higher yields have weighed on equity valuations and tightened financial conditions globally.
Despite these concerns, the backdrop has become more supportive. Negotiations on the Iran war have shown encouraging progress, raising hopes for a potential peace agreement. We believe the US is more likely to pursue diplomatic pressure than renewed military escalation.
In Southeast Asia, markets were divergent in May, reflecting varying levels of exposure to global themes and differences in domestic fundamentals. Thailand was the region's standout performer, with the SET index rising 5.2% for the month and 24.7% year-to-date.
The rally in Thailand was driven primarily by electronics exporters, particularly DELTA, as investors continue to position for the global artificial intelligence and semiconductor investment cycle. Singapore's Straits Times Index gained 2.4% for the month and 8.2% year-to-date, supported by financials, industrials and resilient domestic demand.
Vietnam remains a compelling structural growth story. The VN-Index advanced 1.1% for the month and 5.0% for the year-to-date, supported by expectations surrounding its anticipated FTSE Emerging Market upgrade in September 2026. However, gains are concentrated in selected large-cap stocks, suggesting broader market participation remains limited. Investors continue to accumulate positions ahead of the expected reclassification, although substantial inflows from passive funds are likely to occur only after the official upgrade.
The Philippines gained 2.2% during May, but remains down 1.5% for the year as political uncertainty weighs on investor sentiment. Malaysia's KLCI declined 1.3% for the month and is only marginally positive at 1.1% for the year, as foreign outflows and earnings concerns constrain performance.
Indonesia remains the weakest market in the region as the Jakarta Composite Index has plunged by 29.1% year-to-date, driven by concerns over market transparency, policy uncertainty and sustained foreign capital outflows. Recent declines were amplified by MSCI's decision to suspend index rebalancing activities related to Indonesia and growing concerns over a potential downgrade from emerging to frontier market status. Bank Indonesia responded by raising rates to support the rupiah, but investor confidence remains fragile.
THAI EQUITIES
In June, we expect the SET index to trade within a defined range of 1,520 to 1,600 points, driven by strategic sector rotation. Investor sentiment remains dependent on the timely rollout of major government projects to stimulate the local economy.
Globally, while geopolitical conflicts show encouraging signs of resolving, asset prices have already rallied significantly in anticipation, meaning further upside momentum is relatively limited. As a consequence, we anticipate near-term profit-taking as capital rotates out of recent outperformers.
Given a capped upside for the index, the optimal strategy for investors in the Thai market shifts towards rigorous bottom-up stock selection rather than relying on broad event plays. While the broader market rests, selected equities are still underperforming their fundamental value. Our top picks for June are Global Power Synergy (GPSC), Bumrungrad Hospital (BH) and Bangkok Airways (BA).
GPSC (target price 50 baht): Easing US-Iran tensions should lower energy prices, boost spark spreads, or gross margin for natural gas-fired power plants. We forecast 2026-27 net profit to grow 12% year-on-year, driven by lower interest and tax rates, with further upside from potential PTT Group power plant acquisitions.
BH (target price 215 baht): The stock has retreated 17% despite robust Middle Eastern revenue in the first quarter and a projected recovery in the second quarter. We forecast average earnings growth of 5% over 2026-28, outperforming the sector average of 2%.
BA (target price 18 baht): Forward bookings for Koh Samui during the summer schedule grew about 3% year-on-year, reflecting resilient demand. Easing jet fuel pressures will support a third-quarter earnings recovery, while the valuation remains appealing at just 8 times the price/earnings ratio with a strong 9% dividend yield.
