Nakornthon Schroder Asset Management Ltd predicts that Thailand will resume its economic growth path in 1999 with a positive growth rate of 2.6 per cent, against this year's negative growth rate of four per cent.

Underlying Nakornthon Schroder's bullish view on Thailand, despite the short-term volatility along the way, is the recognition that Thailand has demonstrated its commitment to undertake drastic reform efforts and its adaptability to the economic turmoil that has been ravaging the region.

Both Douglas Cairns, chief investment officer of Nakornthon Schroder, and Matthew F Dobbs, regional managing director of Schroder Investment Management (Singapore) Ltd, emphasised that the upheavals that are rocking Indonesia and now Malaysia might actually do Thailand some good because the financial markets will have an opportunity to distinguish Thailand from the rest in the region.

Indeed, a degree of confidence has already returned to Thailand since early 1998 due to its remarkable progress in following through with the IMF-prescribed financial and economic reforms, its decision to abolish the two-tier currency system, its prospect of achieving a currency account surplus and the uptrend of the Thai baht.

''Although the economy has not yet bottomed out, the fundamentals for recovery are being put in place,'' Cairns said.

Nakornthon Schroder has projected that inflation, as measured by the consumer price index, is likely to peak at 14 per cent but will average out at 11.6 per cent overall this year. Cairns said the prospect of runaway inflation, fuelled by the sharp depreciation of the baht, has been kept under check because aggregate demand in the economy is low. Looking ahead to 1999, inflation should further come down to 8.5 per cent, he added.

Another confidence factor in the Thai economy is a turnaround in the current account, which hit 8 per cent of gross domestic product in the past. This year, with a curb in domestic demand and shrinking imports, the current account is likely to achieve a slight surplus of 0.7 per cent of GDP, according to Cairns. The current account will also remain stable next year, probably posting a deficit of 0.5 per cent of GDP, he added.

Nakornthon Schroder's projection of the average minimum lending rate in 1998 is 15.25 per cent, but the situation will ease next year with the average MLR at 12 per cent. Its estimate for the baht/US dollar exchange rate in 1998 is Bt46, against next year's Bt40.

It is broadly recognised that if the economy is to recover, it must be able to re-establish confidence and attract a return of foreign capital flows. Dobbs said the IMF assistance, the appropriate policy responses of the Thai government and the measures to strengthen the banking system have laid the groundwork of confidence to return.

He expected that it would not be an impossible job for Thailand to achieve a successful debt rescheduling and restructuring with foreign creditors.

In dollar terms, the Stock Exchange of Thailand (SET) bounced back dramatically in the first two months of this year by 60 per cent after a shocking performance in 1997 when it crashed by almost 80 per cent on the debris of the economic meltdown. Coming down a long way from a SET index of 1,757, the stock market will still have a long way to go.

Dobbs and Cairns emphasised that the worst for the stock market is over, although a recovery will take time.

Yesterday, Nakornthon Schroder signed selling agent agreements with Standard Chartered Bank, Union Asia Finance Plc, Asia Securities Plc and Asia Finance Co Ltd. It has also appointed Nakornthon Bank as registrar of its unit trusts.

So far, Nakornthon Schroder, a latecomer to the Thai mutual fund industry, has launched three funds: Nakornthon Schroder Income Plus Fund, Nakornthon Schroder Growth Fund and Nakornthon Schroder Income Fund.

Cairns said the fixed income fund investment strategy is to adopt a low credit risk profile, diversification of portfolios, a focus on high yielding short-term paper of quality issuers and subsequently a focus on smaller local institutions as liquidity and the economy improves.

The Nakornthon Schroder Income Plus Fund (asset size Bt482 million) and the Nakornthon Schroder Income Fund (asset size Bt543 million) posted a three-month annualised return as of March 6, 1998, of 13.76 per cent and 13.85 per cent, respectively, beating fixed bank deposits. The net asset value of the former fund is Bt9.79 compared to the latter's Bt10.69 as of March 6, 1998.

As for the equity fund, the Nakornthon Schroder Growth Fund (asset size Bt274 million) outperformed the SET index by 40.3 per cent based on since the inception of the fund on July 18, 1997, to March 9, 1998.

Cairns said the equity strategy of the growth fund is to remain underweighted in banks and building stocks at this juncture but increase exposure to devaluation beneficiaries such as food exporters and hotels. Moreover, the fund will seek to have exposure to companies with good business franchises that have recapitalisation potential or companies that have long-term recovery prospects, he added.