The Stock Exchange of Thailand (SET) index is expected to move narrowly sideways in the coming period as investor confidence is pressured by the escalating Sino-US trade dispute and domestic political uncertainty, says the Investment Analysts Association.
IAA chairman Paiboon Nalinthrangkurn said market participants no longer have a negative sentiment towards domestic politics because the election is over, but the stability of a new government is open to question, leading to questions about policy continuity.
Parliament is scheduled to convene next Wednesday, the fifth anniversary of the 2014 military coup, now that the names of 99% of the 500 MPs and all 250 senators have been officially announced.
Market participants are keeping a close watch on the prime minister nomination and cabinet line-up.
"The capital market has absorbed expectations that the new cabinet will be a fragile government coalition," Mr Paiboon said. "The next step to watch is the mixed combination of political parties joining the cabinet.
"Ministerial positions in charge of economic affairs will not be allocated to many parties, while the cabinet tenure could be short-lived or fail to complete a full term [of four years]. Hence, ministers in charge of economic policies must be acceptable and be ready to work as soon as they start their jobs."
If market participants expect the new government's tenure to be short-lived, foreign investors will have a short-term investment view in Thailand's capital market, resulting in short-term capital inflows, he said.
"The new government must build confidence that they can stay in the long run with a list of reasons," Mr Paiboon said, adding that long-term government stability is essential for building the confidence of consumers and investors.
The SET index is projected to move between 1,580 and 1,680 points in the short run, according to the IAA.
Besides concerns over government formation, an increase in the daily minimum wage touted by two different camps of Thai politics warrants monitoring, said Terdsak Taweethiratham, senior vice-president of Asia Plus Securities (ASP).
"Both camps are similar in terms of focusing on stimulating domestic consumption, but a policy to increase the daily minimum wage could have an impact on SET-listed companies' net profit," Mr Terdsak said.
Companies poised to experience an adverse effect are those registering low net profit margins and having high labour costs, he said.
Thailand's GDP growth is forecast at 3.4% this year, based on 0.5% export growth, global oil prices standing at US$65 a barrel and a baht value against the greenback of 32, ASP said.