SCB CIO sees limited impact from stimulus steps

The potential impact of the new government's stimulus measures on the economy is likely to be limited, while the stock market has already factored in risks related to political issues, says the SCB Chief Investment Office (SCB CIO).

Kampon Adireksombat, first senior vice-president and head of SCB CIO, said the formation of a new coalition government remains uncertain and may take longer than usual, as seating a prime minister requires a minimum of 376 votes combined from the House of Representatives and Senate.

According to the legal framework, the first meeting of the House must be held by July 28.

"The Thai economy is trying to recover during this political process," he said.

The economy grew 2.7% year-on-year in the first quarter, compared with 1.4% in the fourth quarter last year. On a seasonally adjusted quarter-on-quarter basis, the economy expanded 1.9% compared with a contraction of 1.1% in the fourth quarter of 2022, supported by a strong recovery in private consumption and tourism.

The likelihood of the economy entering a technical recession has significantly decreased, said Mr Kampon.

"While specific details regarding the new government's economic stimulus measures remain sparse, their potential impact on the economy is expected to be less significant than those announced earlier, primarily due to the existing high public debt-to-GDP ratio that leaves limited fiscal space available for additional stimulus," he said.

Household debt stands at a considerable 87% of GDP, further constraining lending activity in the financial sector as caution prevails, said Mr Kampon.

The Thai bourse has successfully emerged from an earnings recession, which refers to a period when listed companies experience two consecutive quarters of profit contraction compared with the corresponding period the previous year.

Mr Kampol pointed out that according to the legal framework, the first meeting of the House must be held by July 28.

According to SCB CIO, the forward price-to-earnings (P/E) ratio of Thai stocks has declined from 15.4 times prior to the election to 15.0 times now.

"The current market index is believed to have already factored in potential risks related to political issues. Investors are advised to consider accumulating stocks in sectors such as tourism, consumer goods, and hospitals, which have demonstrated robust performance and continue to exhibit signs of recovery," he said.

While the US public debt ceiling issue has the potential to cause volatility in the global financial market, it is expected that this matter will primarily affect the US economy in the short term.

"It is anticipated a bill to increase the debt ceiling will ultimately pass Congress," said Mr Kampon.

If a consensus cannot be reached before the deadline, Congress may pass a law to slightly increase the debt ceiling or temporarily postpone the debt ceiling until Sept 30, potentially in conjunction with the spending plan for fiscal 2024, he said.