Investors in Worst-Performing Asian Market on Edge Post Poll
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(Bloomberg) -- A week after Thailand’s pro-democracy parties garnered an historic win in national elections, investors are getting nervous over the formation of a coalition government.
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The uncertainty has triggered an outflow of funds since the May 14 poll, worsening the rout in Asia’s worst-performing stock market this year and sending the baht lower against the dollar. While the coalition is formalizing its alliance Monday, the selloff may continue until there’s clarity on the new leadership.
“Investors will wait for any further positive political development” before making any investment decisions, said Rakpong Chaisuparakul, an analyst at KGI Securities (Thailand) Pcl in Bangkok.
The Move Forward Party, which won the most seats in the election, aims to win parliamentary support for a coalition of more than 300 members with its leader Pita Limjaroenrat as prime minister. The alliance is still short of the 376 votes needed to form a government without counting on the support of the 250-member, military-appointed Senate that also gets to decide on the premiership.
The benchmark SET Index added 1% on Monday, trimming its post-election retreat to 2%. The baht weakened 0.2% against the dollar, set for a fifth day of losses.
“Thai equities will still face selling pressure in the short term from the uncertainty about the formation of new government, and there’s deep concern about the Move Forward party’s urgent policies, such as an increase in the minimum wage, that would be negative for the market,” said Narongdach Juntarapaisarn, an analyst at Aira Securities Pcl in Bangkok. “The announcement of an MoU by the coalition parties in the new government should make its policy framework clearer to the market.”
Election Overhang
Investors withdrew $513 million from the nation’s bond market last week for the first weekly outflow in a month, and sold $312 million of local equities, according to data compiled by Bloomberg.
“The longer these negotiations drag on, the more uneasy investors become,” said Galvin Chia, a currency strategist at NatWest Markets in Singapore. “Forming a new government quickly will remove the overhanging electoral worries and is crucial to easing investor worry.”
Should the coalition manage to form a government, the parties are expected to follow through with their promises of giving cash handouts, increasing the minimum wage and boosting the allowances for pensioners and the elderly. The Move Forward Party has also pledged to end business monopolies and promote more investment outside of Bangkok.
Still, Pita’s coalition may be at risk if conservative parties band together to secure the backing of the majority of the Senate. Such an outcome may spark a revival of protests from pro-democracy supporters after almost a decade of military-backed rule in Thailand.
--With assistance from Nicholas Reynolds.
(Closes stock index level and updates baht in fifth paragraph.)
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