Playing the waiting game
text size

Playing the waiting game

Analysts and investors are holding their breath as the new coalition government takes shape

Shares of many listed companies dipped following the May 14 elections, in which the Move Forward Party won the majority of seats in the lower house. Pattarapong Chatpattarasill
Shares of many listed companies dipped following the May 14 elections, in which the Move Forward Party won the majority of seats in the lower house. Pattarapong Chatpattarasill

Before May 14, many investors and analysts were hopeful that the general election could reverse the "sell in May" phenomenon, which refers to the Thai bourse traditionally underperforming during the hot, dry months.

Statistics indicate the Stock Exchange of Thailand (SET) index usually rises 1.1% a week before a national election and 5.3% a week after, following a so-called election rally.

Yet the recent poll sent the SET into a tailspin, dipping 3% the first week after the election as political uncertainties triggered an outflow of funds, worsening the rout 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, according to analysts.

Investors rushed to dump shares of big-cap stocks amid fears 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.

Affected stocks are mostly in the power generation, telecom and retail sectors, where a few big players dominate each business.

The industrial, construction and hotel sectors have also been affected by the MFP's proposed daily minimum wage hike to 450 baht.

"Domestic factors caused by uncertainties surrounding the new government and prime minister have affected the stock market adversely," said Kavee Chukitkasem, head of research at PI Securities.

"I think as soon as we know who is voted as the next House speaker [due on July 25], the concerns should ease."


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

"The left-leaning MFP winning the polls may have caused some skittish investors to sell their shares of big conglomerates," 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."

Mr Wasu said the MFP's 15 main policy positions do not include any crackdown on big business.

At a recent analysts' meeting, executives of Gulf Energy Development Plc said they believe the adjustment of power purchasing agreements based on new government policies, namely the abolition of availability payments (AP), is unlikely to happen, said Natchapon Praesicharoen, an analyst with Yuanta Securities.

"The government would have to negotiate with both project developers and the financial institutions that lend them money, because abolishing AP could affect the debt servicing capacity of those companies," Mr Natchapon wrote in a recent research paper.

In Gulf's view, cutting the fuel tariff (Ft) by 70 satang per kilowatt-hour (unit) is more likely. However, the impact of this policy is limited as the declining liquefied natural gas (LNG) price could help lower the Ft for the September-December period by 50 satang per unit.

"A proposed cut of 70 satang per unit means only 20 satang per unit would be sacrificed over the last four months, compared with current rates. With a reduction of the Ft, only 1% of Gulf's estimated profit would be lost," the analyst noted.

"As MFP ran on reducing monopoly power in several industries, this makes it harder for Gulf to expand capacity in Thailand given that the company is the industry leader and was awarded the largest amount of electricity purchases [from the Energy Regulatory Commission]."

Gulf has stepped up its expansion with projects in Asia, the US and Europe, in addition to expressing recent interest in investment in wind and LNG-to-power projects in Vietnam.

Thailand's largest power producer by market value acknowledged that the country's power reserve margin is at a healthy level compared with nationwide renewable power production, while the power tariff in Thailand is falling in line with gas prices.

Gulf has a new project backlog of 4,000 megawatts slated to start commercial operations through 2043.

The company recently invested in a 20% stake in a Luang Prabang power plant with a capacity of 292MW, giving it three hydroelectric power plant projects in Laos.

Gulf also won a bid for a clean energy project in Thailand with a capacity of more than 1,700MW equivalent.

KGI Securities projects this year Global Power Synergy's (GPSC) earnings should roar back, led by downward trends in energy prices and capacity expansion.

Given rising demand for electric vehicles, GPSC is collaborating with battery producers.

Meanwhile, Avaada is set to be an investment vehicle to capture renewable growth in India, said the brokerage.

However, KGI Securities sliced GPSC's target price to 69 baht from 80 baht, reflecting the earnings cut.

"The risk-to-reward looks compelling at the current share price. That said, investors with a low risk appetite may accumulate the stock once there is clarity on the new government's power policies," said the brokerage.

Krungsri Capital Securities (KCS) said if there is a hike of daily wages, inflation would be affected by 0.27%. As a result, the profitability of listed companies will be diluted by 5.2 billion baht, excluding the economic impact of the growth in consumer purchasing power.


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 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," the New York-based credit rating agency noted.

"There could be some disruption to budget spending for fiscal 2024 if coalition negotiations drag on, which would be negative for Thailand's economic prospects."

Thailand's public finance metrics significantly deteriorated during the pandemic, eroding its headroom at the current rating level, but Fitch forecasts government debt-to-GDP and interest-to-revenue ratios will remain broadly in line with the median for BBB category sovereigns over 2023-24.

"If the next government fails to stabilise the debt ratio, either because of continued spending pressures or external shocks outside our baseline assumptions, that would put downward pressure on the sovereign rating," noted the agency.

Fitch said campaign pledges may require significant additional expenditure.

"This spending could challenge fiscal consolidation prospects, particularly given adverse demographic factors," said the agency.

"However, the pacing of any spending increases and revenue growth will also influence fiscal outcomes."

Last November, Fitch said a heightened political disruption that alters Thailand's economic policymaking effectiveness and growth prospects could result in a negative ratings action.

Protracted political uncertainty or a substantial escalation of social tensions over the process of government formation could also pose risks to Thailand's credit profile, though this is not Fitch's baseline assumption, said the agency.

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.

The forward price-to-earnings (P/E) ratio of Thai stocks declined from 15.4 times prior to the election to 15.0 times.

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

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

An investor monitors graphs depicting fluctuating stock prices on a device.


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, said Amonthep Chawla, chief economist at CIMB Thai Bank.

Mr Amonthep said he expects the new government will continue to focus on stimulus measures supporting recovery momentum for the short term.

A minimum wage hike, pledged by both MFP and the Pheu Thai Party, is possible but requires further examination, he said.

If the new government raises the minimum wage, it would increase the purchasing power of the lower-income segment and should provide an opportunity for them to access better loan sources, said Mr Amonthep. This would benefit the banking sector in the areas of personal loans, auto loans and motorcycle loans, he said.

The new government's formation will take around two months based on the existing timeline, said Mr Amonthep, affecting budget disbursement for fiscal 2023 as well as government spending, slightly dampening GDP this year.

Thanyalak Vacharachaisurapol, deputy managing director of Kasikorn Research Center (K-Research), agreed the timeline for the new government formation would impact state spending for this year. As a result, tourism and exports are likely to drive economic expansion this year, in line with an earlier forecast.

An economic recovery should support economic activities and promote loan expansion in the banking sector, she said.

If a new government can be formed by August as planned and implement its economic policies, this could drive economic activity, said Ms Thanyalak.

In this scenario, the banking sector would benefit from loans and other financial services, according to K-Research.

"The coalition leader has prioritised the country's competitiveness and supporting virtual banking to improve financial inclusion. Given this direction, it should benefit debt restructuring and tackling household debt," she said.

CreditSights, a unit of Fitch Group, said pro-growth policies and the absence of protests will be helpful for banking loan growth, fee income and asset quality.

"Populist proposals and campaign pledges such as cash handouts and raising the minimum wage will also deliver a spending boost to the economy," said the unit.

KCS stated that if any policy can actually propel the economy, it will give a boost to investor confidence as well as the profits of listed companies.

Banks, consumer products, retailers and hire-purchase companies are likely to benefit from the MFP's policies to increase people's purchasing power, support small and medium-sized enterprises and raise the minimum wage, said the brokerage.


If the new government attempts to cut electricity bills by adjusting the Ft structure, this scheme is unlikely to work and could end in further dependence on subsidies, said Gunkul Engineering Plc, a renewable energy developer and construction firm.

In a memorandum of understanding signed on May 22 by political parties intending to form a MFP-led coalition government, the parties agreed to restructure the power tariff and the electricity production structure to ease the cost of living.

Without addressing whether such policies would affect Gunkul, chief executive Somboon Aueatchasai said he believes the government can do little to change the Ft, which is determined by factors including the price of fuel used for electricity generation, foreign exchange rates and the AP.

The government is responsible for the AP under its power purchase agreements made with power firms, though the actual usage may be lower than the amount charged during the agreed time frame.

The AP makes up 20-30% of the Ft, which is largely influenced by fuel prices and foreign exchange rates, said Mr Somboon. He said the surge in power bills is a result of the Russia-Ukraine war, which drove up global energy prices last year, in addition to exchange rate fluctuations.

"It's very difficult to make any change to the Ft calculation. The question is how much the government will be able to subsidise electricity prices," said Mr Somboon.

A source in the energy sector who requested anonymity said it is unclear how the authorities can change the AP as they have to follow regulations and conditions stated in the purchase agreements.

Harald Link, president of B.Grimm Power Plc and chairman of B.Grimm Group, said he is not worried about the establishment of a new government because the group can work with any administration and will continue with its investment plans, according to media reports.

The Energy Regulatory Commission is ready to follow the energy policies of the new government, including a plan to cut the power tariff, said secretary-general Khomgrich Tantravanich.

One measure to reduce the tariff rate for households is to give them first priority to use electricity generated from power plants using gas from the Gulf of Thailand as fuel, he said. Domestic gas supply is cheaper than gas from Myanmar and imported LNG.

A surge in LNG prices last year was attributed to the impact of the Russia-Ukraine war, which increased power bills in Thailand.

Currently the petrochemical sector is granted first priority to use gas from the Gulf, while other businesses and households use gas from other sources in a gas pool. A gas pool refers to gas supplied from the Gulf, Myanmar, the Malaysia-Thailand Joint Development Area and LNG imports.

Mr Khomgrich said the new government can adopt this measure to help households with bills as it can cut the power tariff by 0.3 baht per unit.

Yuthana Praiwan

Do you like the content of this article?