''There is a recovery in Asia. When foreign investors look at South Korea's position, where the stock market has risen from 300 to 800, they are deciding to pour their money into the Thai bourse. Essentially, they are betting on a recovery. They might be right or they might be wrong,'' says Dr Supavuch Saichua of Merrill Lynch Phatra Securities.

The sharp upturn in the local equity market, which closed yesterday at 459.35, or 121.56 per cent higher than its lowest level of 207.31 on Aug 31, 1998, can also be attributed to inflows of foreign funds. After facing a deficit of US$447 million in January and $48 million in February, the balance of payments turned positive in March, standing at $1.3 billion, which reflected an inflow of both official and private funds into the economy.

''Foreign fund managers have been scrambling to overweigh equities in their portfolios because the mutual funds they are managing are flush with fresh funds, which must be invested somewhere. And right now, the theme is the recovery story in Asia,'' Supavuch added.

However, the real question is how long can the current rally, buoyed by net foreign buys, be sustained. The last time foreign investors bet on a Thai recovery was in February last year, which led to Thai Farmers Bank's and Bangkok Bank's successful global equity offerings in subsequent months. They were wrong then and lost money badly, for they had not fathomed the depth of the banking woes, which subsequently developed into a full-blown crisis with about 50 per cent of non-performing loans (NPLs) in the banking system.

Now sentiment has improved significantly over the February-April 1998 period, during which Thailand was still facing difficult macroeconomic imbalances. Apart from the signs of the economy bottoming out, the key fundamental supporting the recent equity market rally has been the low interest-rate environment, which has fuelled confidence and will ease the pain of corporate and economic restructuring. Low interest rates help keep assets at relatively high prices, improve the cashflow of companies and making the cost of doing business cheaper.

''If the government can keep interest rates low over the next three to five years, the economy will continue to improve,'' Supavuch says.

The sentiment for Thailand is so buoyant that Siam Commercial Bank has succeeded in raising about US$1 billion in its global offering. Finance Minister Tarrin Nimmanahaeminda, who is currently in the United States, is likely to reclaim some of his eroding stature and face less political pressure over his financial and economic reforms when he returns home. Incidentally, his trip to New York coincided with Siam Commercial Bank's roadshow for the global offering, which was six times oversubscribed. He acted as a salesman on Siam Commercial Bank's behalf, in exactly the same way he did for Thai Farmers Bank in March 1998 when the bank tried to raise about US$1 billion.

If the government succeeds in selling off Nakornthon Bank to Standard Chartered Bank, it will further fuel the sentiment that Thailand is on the right track in its financial reform. Adding to the buoyant mood is Moody's Investor Services' decision to change the outlook from negative to stable for the ratings of Bangkok Bank, Krung Thai Bank, Thai Farmers Bank and Siam Commercial Bank as well as the Export and Import Bank of Thailand. This has won back some confidence in Thailand, although careful reading of the Moody's statement shows that it remains very cautious about the pace of banking reform, which will still require a substantial amount of money through government intervention.

''Despite the exceptional degree of regulatory forebearance, the banking system remains extremely weak and substantially undercapitalised,'' Moody's said. ''The loan-loss reserves that have been targetted to be in place by end-2000 are not, in the rating agency's view, adequate for the losses that lenders are likely to experience through the course of the present credit cycle. Unless true solvency is restored, the banking system is unlikely to be able to support Thailand's economic recovery.''

The present euphoria in the equities market may risk slowing the progress of the crucial corporate debt and economic restructuring, on which the market rally hinges. Tarrin has been betting his political career on the painful IMF-prescribed financial and economic reforms in return for capital inflows. He is now winning part of that battle, but the real story lies in how deeply local corporations and banks are willing to undergo restructuring to sustain long-term economic recovery.

Hubert Neiss, head of the IMF's Asia-Pacific Department, warned of the prospect of a short-lived stock market rally if regional economies fail to keep up with the pace of concrete financial and economic reforms.

''Stock market buoyancy should be based on progress in the economies and continued policy implementation, in particular the banking reforms and corporate debt restructuring. That is important and if it were to slow down, there could be a change in market sentiment,'' Neiss was quoted as saying by AFP.

If sentiment changes again due to the country's failure to keep macroeconomic stability intact or its corporates' and banks' complacency in restructuring, then the country's recovery will be postponed for many more years.