Volatility in Thailand's stock market is expected if Thursday's ruling on the dissolution of the Thai Raksa Chart Party roils investor confidence, though disappointing fourth-quarter earnings are the main culprit in the recent foreign sell-off.
Investors are holding their investments in Thai equities as they adopt a wait-and-see attitude on the political situation, said Isara Ordeedolchest, head of the research group at Krungsri Securities.
Thanomsak Saharatchai, executive vice-president of KT Zmico Securities, said the imminent court ruling is a short-term factor affecting equity sentiment, though momentum is mostly positive with the general election scheduled for March 24.
The Constitutional Court ruling on the fate of Thai Raksa Chart will be announced on Thursday, just 17 days before the general election.
The Election Commission has formally requested that the court dissolve the party, citing a clause in Section 92 of the 2017 organic law on parties that allows the commission to propose the dissolution of a political party if there is enough evidence that it committed an act deemed hostile to the monarchy.
The move came after Thai Raksa Chart last month nominated Princess Ubolratana as its sole prime ministerial candidate.
Investors are reducing their exposure to energy and petrochemical stocks because of the decline in global crude prices, while disappointing fourth-quarter earnings of SET-listed companies have prompted investors to offload domestic equities in their portfolios, Mr Isara said.
The past six days saw nearly 10 billion baht worth of foreign outflows, with the baht continuing its depreciation, as investors shifted their capital to other attractive markets, he said.
Mr Thanomsak said foreign funds are poised to move out of Thailand's capital market in the short term and into markets like the Philippines, Indonesia and India, where economic growth prospects are higher than Thailand's.
Wilasinee Boonmasungsong, vice-president for research at Globlex Securities, said foreign investors are overweight on China's capital market after the MSCI emerging markets index increasing the weighting of Chinese stocks by more than fourfold in May.
The yuan's status as one of the world's reserve currencies has added investment appetite for Chinese stocks, she said.
Despite domestic political developments keeping a lid on investor confidence, foreign inflows worth 50-70 billion baht are anticipated later this year, Mr Isara said, as China's economy is expected to recover gradually and provide a boon for investment incentives in emerging-market economies.
If the US dollar index continues to weaken from 97 points to 94.5 points, this will also shore up foreign capital inflows into Thailand's stock market, he said.
The upcoming general election is projected to lend a medium-term fillip to stock market sentiment, with stocks clustered in the retail and commerce segment poised to benefit from a stock market rally ahead of the election, Mr Isara said.
Construction and hospitality equities are also expected to be beneficiaries of such positive investment momentum.
