Thai election fallout hits SET, investors dump big-cap stocks

Despite initial optimism that the General Election could reverse the “sell in May” phenomenon, the recent poll sent the Stock Exchange of Thailand (SET) index into a tailspin, dipping 3% the first week after the election. Political uncertainties have triggered an outflow of funds, worsening the situation for Asia’s worst-performing bourse this year. The market capitalisation of the SET has contracted 132 billion baht or 1.7% since the May 14 poll.

Investors have been selling shares of big-cap stocks amid concerns that the policies of the Move Forward Party (MFP), which won a majority of 152 seats, would affect listed companies’ capacity to generate profits. There are also concerns that an extended delay in forming a new coalition government could disrupt budget spending for fiscal 2024, which starts in October. Kavee Chukitkasem, head of research at PI Securities, said…

“Domestic factors caused by uncertainties surrounding the new government and prime minister have affected the stock market adversely.”

Wasu Mattanapotchanart, equity research analyst at Maybank Securities (Thailand), believes that fears about the MFP breaking up monopolies are likely exaggerated. He said…

“We believe the fear of demonopolisation is overblown as MFP leaders are likely to prioritise social and political issues such as decentralisation of the government and military reform while letting the Pheu Thai Party take charge on the economic front, which is the party’s core strength.”

The outlook is hazy on whether the MFP can secure sufficient support to form a coalition government with Pheu Thai and smaller parties. Potential partners could include a diverse set of political groups with a wide range of policy priorities. Effective policymaking may be temporarily constrained if the coalition-building process delays the formation of a new government for several months, Fitch Ratings said in its recent research. The New York-based credit rating agency noted…

“The fiscal policy outlook is uncertain, but we assume the next coalition government will remain committed to some of the outgoing administration’s key economic policies.”

Kampon Adireksombat, first senior vice-president and team head of SCB Chief Investment Office, said the current market is believed to have factored in potential risks related to political issues. Thai stocks’ forward price-to-earnings (P/E) ratio declined from 15.4 times before the election to 15.0 times.

He said that household debt stands at a considerable 87% of GDP, further constraining lending activity in the financial sector as caution prevails.

Amonthep Chawla, the chief economist at CIMB Thai Bank, said the expected welfare and economic stimulus measures of a new coalition government should support lower-income people and benefit unsecured loans from banks in the short term while assisting loan growth in the long term as the economy recovers.

If a new government can be formed by August as planned and implement its economic policies, this could drive economic activity, said Thanyalak Vacharachaisurapol, deputy managing director of Kasikorn Research Center (K-Research). In this scenario, the banking sector would benefit from loans and other financial services, according to K-Research, reported Bangkok Post.