The baht rallied after pro-democracy parties emerged as the biggest winners in Sunday’s election, while stocks linked to some of the nation’s billionaires fell on concern that a new government will introduce more industry competition.
The currency rose as much as 0.9% against the dollar, with investors betting that a coalition government led by the Move Forward Party — the leader in the polls — will be pro-growth. The benchmark SET Index though fell 1.3%, the most since April 5, as the winner has pledged to usher in more competition in sectors such as telecom and power.
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 Mr Pita’s party wants to end business monopolies and promote growth outside of the capital Bangkok.
“There is a negative sentiment on large stocks in industries with limited competition because of the policies of the winning party,” said Koraphat Vorachet, an analyst at Krungsri Securities Co. “The pledge to raise daily wages will also hurt labour-intensive industry such as hotel, restaurant and construction sectors.”
Gulf Energy Development Plc, Advanced Info Service Plc and Intouch Holdings Plc, companies backed by billionaire Sarath Ratanavadi led losses on the stock index. CP All Plc, True Corp Plc and Siam Makro Plc, majority owned by Dhanin Chearavanont’s Charoen Pokphand Group, also declined.
Still, political analysts have said that any parties seeking to form government would have to contend with the influence of the military-backed Senate. Those senators also get a vote for prime minister, and other parties may be reluctant to join with Move Forward due to its position on the monarchy.
Move Forward is the only major party calling for changes to allow greater freedom to discuss the royal family. Perceived opposition to the 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.”
Coalition talks
Stocks associated with the Pheu Thai party, which is linked to exiled former premier Thaksin Shinawatra, also retreated as it finished second in the election.
“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.”
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 3.7% gain in the MSCI Asia Pacific Index.
Still, the economy expanded more than estimated in the first quarter as the nation benefited from a resurgence in tourism. Bank of Thailand Governor Sethaput Suthiwartnarueput signalled that the central bank will stick to its gradual and measured monetary tightening to curb inflation, although price gains have returned to target.
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 rose 0.6% to 33.788 against the dollar.