The Stock Exchange of Thailand (SET) index retreated on Thursday, following several days of increases, but analysts said the outlook has improved with stocks related to the Bhumjaithai Party expecting to gain in the next few days on the likelihood that the party would join a new government formation led by the Pheu Thai Party.
Trinity Securities sees a very high chance that the Bhumjaithai Party, which won the third-most seats in the May 14 national poll after the Move Forward Party (MFP) and Pheu Thai Party, would join the new coalition government.
Now that the Pheu Thai Party is set to lead a new government and nominate its leader for the post of prime minister, there would be speculation on stocks that were linked to the Bhumjaithai Party, including Sino Thai Engineering and Construction, STP&I, and PTG Energy.
Krungsri Securities believes that if the Pheu Thai Party and the MFP stay together in the third joint parliamentary sitting next week, it is unlikely that the coalition would get enough votes to install the premier.
There is a possibility that the Pheu Thai Party may decide to separate from the MFP to gain enough support to form a government and install the prime minister.
If the Pheu Thai Party successfully forms the government, the SET index is expected to trade around 1,570-1,590 points. Then, after the new government announces its economic policy, the SET index would increase further, said the brokerage.
Rakpong Chaisuparakul, senior vice-president at KGI Securities, said concerns over political protests continue to weigh on the Thai stock market's sentiment.
"In our view, after the recent strength in the market, the stock index is likely to be range-bound for a few days, ahead of the event next week," he said.
After parliament resolved that the nomination of MFP leader Pita Limjaroenrat had ended, KGI said it maintained its view that there would be a change in the composition of the new Thai government.
But it remains uncertain who will become prime minister, Mr Rakpong noted.
Koraphat Vorachet, head of the research department at Krungsri Capital Securities, said the appreciation of the baht to a two-month high of 34 to the US dollar indicated that traders in the offshore market now have a clearer picture of Thai politics.
However, he cautioned that if the new government's composition changes and parties with minority votes form the new administration, the SET index could again slip below 1,500 points.
The SET index closed at 1,521.18 points on Thursday, down 1.01%, in trade worth 45.3 billion baht.