Markets fear long post-poll vacuum
Investor uncertainty about whether MFP coalition can prevail could last until August
published : 24 May 2023 at 15:51
Volatility is rising in the country’s financial markets amid concern that investors will have to wait until August to find out whether the Move Forward-led coalition will really be able to form a new government.
Uncertainty after the May 14 election first triggered an outflow of funds, worsening the rout in Asia’s worst-performing stock market this year and weakening the baht.
The benchmark SET Index is down 7.7% since Jan 1, though stocks have rallied modestly this week and the currency retraced some of its losses on Wednesday.
While the new coalition formalised its alliance on Monday, and official economic data showed better-than-expected first-quarter growth, there is concern that funds will keep taking money out of the country until there is clarity about the new leadership.
“This is a classic case of politics getting in the way of an economic rebound in the making, which would certainly have been bullish for Thai assets,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore.
Overseas investors unloaded Thai bonds for a fifth day on Tuesday, with outflows totalling more than $1.2 billion over the period. They have sold off stocks for 11 straight days, withdrawing 25 billion baht, according to data compiled by Bloomberg.
Foreign investors have been net sellers of 21 billion baht worth of Thai shares since May 1, and have sold a net 85 billion baht since the year began. Last year they were net buyers, for the first time since 2016, of 203 billion baht.
The benchmark SET Index slid 3% last week before rising 1.7% over the past three days.
The Election Commission has up to 60 days after the vote to release official results and certify 95% of the lower house seats. The first session of the new parliament must then take place within 15 days. That pushes back the timeline for government formation to late July or even early August.
The eight-party coalition forged by Move Forward, which won the most seats in the election, has a clear majority of 313 seats in the 500-member House of Representatives. But that is still short of the 376 needed for MFP leader Pita Limjaroenrat to become prime minister. He will require broader support from the appointed Senate, whose 250 members also vote on who will get the top job.
“The rising political risk post election has really unnerved investors, with foreign outflows from Thai bonds and equities,” said Kobsidthi Silpachai, head of Capital Market Research at Kasikornbank. “There’s a serious question from investors about when the new government will be formed. Any delay would significantly affect the economy.”
Should the coalition manage to form a government, the parties are expected to follow through with their promises of increasing the minimum wage and boosting allowances for pensioners and the elderly, among other measures.
Move Forward has also pledged to end business monopolies and promote more investment outside of Bangkok.
“We still expect the SET Index to move sideways until the parliament session to vote on the prime minister,” said Padon Vannarat, head of research at Yuanta Securities. “We have to watch the senators’ direction closely but we expect the index to rebound, especially when the parliament vote for a new PM gets closer."