Thailand’s markets were divided over the outcome of Sunday’s elections, with stock traders waiting on the conclusion of talks between opposition parties to form a coalition government.
(Bloomberg) — Thailand’s markets were divided over the outcome of Sunday’s elections, with stock traders waiting on the conclusion of talks between opposition parties to form a coalition government.
The baht rallied by the most in five weeks after opposition parties, which have promoted pro-growth policies, emerged as the biggest winners in the polls. The benchmark SET Index though fell as much as 1.3% amid uncertainty over the composition of a new government.
Pita Limjaroenrat, the head of the Move Forward Party, is seeking a mandate to serve as Thailand’s new prime minister as he reached out to five parties for support. Should he succeed, he’ll replace the military-backed government of Prime Minister Prayuth Chan-Ocha, who took power in a 2014 coup.
“Projected election outcomes are not leading to a clear-cut outcome and uncertainty will remain high in the near-term,” a team of Morgan Stanley economists and strategists including Min Dai wrote in a note. “Investors will focus on the outcomes of coalition talks, as well as how specific policy proposals will play out as talks begin.”
READ: Thai Pro-Democracy Groups Dominate Vote in Rebuke of Military
Political analysts have said that any parties seeking to form government would have to contend with the influence of the military-backed Senate. Move Forward is also the only major party calling for changes to allow greater freedom to discuss the royal family. Perceived opposition to the royal family has been used as a pretext to dissolve political parties over the past few decades.
“There is some political risk in case Move Forward party fails to lead the new coalition government,” said Varorith Chirachon, an executive director at SCB Asset Management Co. “If it is forced out of the new government, there would be a concern about some protests. That may create some political instability. So investors are closely watching the political development over the next few weeks.”
The biggest decliners on the stock exchange included construction services and industrial materials providers. Gulf Energy Development Public Co., Thailand’s largest power producer, led the drop as Move Forward’s election victory raises concern that an electricity tariff could be cut.
Stocks associated with Pheu Thai party, which is linked to exiled former premier Thaksin Shinawatra, also retreated as it finished second in the election.
Revive Economy
Investors had been pinning their hopes on the general election to revive Thailand’s stock market, which is the worst performer in Asia this year. The SET Index has declined more than 7% year to date, compared with a 3.8% gain in the MSCI Asia Pacific Index.
READ: Thai Election Outcome Expected to Boost Retail, Tourism Sectors
Still, the economy expanded more than estimated in the first quarter as the nation benefited from a resurgence in tourism. This has kept the central bank guarded on price pressures.
Another downside risk for the market is that a delay in the formation of a new government may set back 2024 budget disbursement and “derail investors’ confidence because of the political vacuum that would be created,” said Sunthorn Thongthip, strategist at Kasikorn Securities.
Analysts also said any gains in the local currency due to the election results are premature. The baht is up 2.6% this year, and is the second-best performer in Asia.
Here is a selection of what analysts and money managers have to say:
Win Udomrachtavanich, chairman at Daol Securities (Thailand) Pcl
“The fluid part is we need to see if Pheu Thai party is getting along with Move Forward party. Foreign investors are likely to pause until they see a potential government forming first.”
Chak Reungsinpinya, head of research at Maybank Securities
“In the short-term, we expect market volatility given the unexpected election result with MFP in the lead and PT in second place. Our base case is for MFP and PT to form a coalition government, and we remain positive on the outlook for the SET Index on a 3-6 month view given tailwind from tourism-led economic recovery and potential boost from new government policies.
We like consumption stocks CP ALL, Com7 and Home Product Center. We also like tourism plays Minor International and Erawan as we expect accelerated recovery in the months ahead.”
Nuttachart Mekmasin, strategist at Trinity Securities
“The SET is likely to react in positive tone to some expectations that the two pro-democracy parties will form a coalition government. However, after one week, which is normally the very last period of historical ‘election rally,’ I expect Thai market to enter an overhang mode. The same would apply to the domestic political situation. The key reason is that the current seats of the two parties are not enough to secure a PM vote due in the next two months. Therefore, during this waiting time, I expect some profit taking in the market.
Our recommendation is that investors who bought stocks at the beginning of May should look for profit taking opportunity during this week, especially if the index goes up in response to the poll result. Don’t forget that there will be an event risk waiting at the end of May such as domestic rate hike and US debt ceiling crisis.”
Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd.
“There is greater clarity now that the election is out of the way. This should favor Thai assets, which had been under some pressure last week in the lead-up to the election. There is a tendency for the Thai baht to strengthen in the weeks following an election. Should history repeat, we can expect USD/THB to head lower and potentially test support at the 33.5 level.”
Alvin Tan, head of Asia FX strategy at RBC Capital Markets
“Any THB gains on the election results are premature. A coalition government is still required. As such, the full outcome is unlikely to be known for weeks.”
Alan Lau, strategist at Malayan Banking Bhd
“The election would have a limited overall impact on the THB as tourism is unlikely to be heavily disrupted no matter the outcome. Some knee jerk reactions from the market may occur but they shouldn’t hold and the currency should still as a whole be driven by other factors such as the broad USD performance, China’s recovery and the level of tourism inflows.”
Galvin Chia, strategist at Natwest Markets
“The election results are so far looking in favor of the opposition parties. Markets were calm and leaning optimistic in the lead-up to the elections, which suggested to me little risk premia being priced in. A smooth transition of power would of course be positive, but I’m watchful in the coming days and weeks for any potential hiccups along the way.
Signs of political conflict or greater uncertainty around who gets into office could price more risk premium into THB. I would expect THB to otherwise be another regional macro trade that focuses on the likes of tourism flows, portfolio flows, and the economic recovery.”
–With assistance from Tian Chen, Ishika Mookerjee and Abhishek Vishnoi.
(Updates throughout)
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