Thai Markets Face Pressure Over Political Risk, Analysts Say

(Bloomberg) -- Thailand’s assets fell, weighed by worries over a potential delay of policy implementation following the ouster of the nation’s Prime Minister.

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The benchmark SET Index dropped as much as 1%, even as equities in most Asian markets gained. The baht declined, underperforming regional peers.

Market watchers say concerns about elevated household debt and investment attractiveness remain a priority, which may not be addressed by the government until a new leadership is established. A multi-party coalition led by Pheu Thai looks poised to nominate former law minister Chaikasem Nitisiri as its candidate for the premiership, signaling a continuity of policies, including a $14 billion cash handout program to boost consumption.

Here’s what market watchers are saying:

Kaushal Ladha, analyst at Macquarie Securities

• The Thai market was “caught off-guard” by the court decision, and given a period of uncertainty, recommends investors “stick” with defensive names in health care and telecommunication sectors

• Bangkok Dusit Medical Services, Bumrungrad Hospital, Advanced Info Service and Bangkok Bank could benefit

Philip McNicholas, strategist at Robeco Singapore Pvt.:

• “We are positioned for the yield curve to move lower” as the removal of Srettha may mean a delay in the digital wallet scheme, which will weigh on near-term nominal growth prospects

• The change also removes Bank of Thailand from the spotlight, possibly giving them a freer hand to consider policy easing without such action raising questions about their independence

Kaseedit Choonnawat, analyst at Citigroup Inc.:

• Expects overall SET Index to face short-term pressure with domestic sectors including consumer finance, banks and property facing more downside compared to internationally exposed and utility sectors

• “While it is still too early to tell, a new cabinet that is able to provide a good balance between coalition parties may stand to last the remainder of the four-year term and provide some medium-term political stability”

Kitpon Praipaisarnkit, analyst at UOB Kay Hian:

• “The court’s verdict raises concerns for the equities market and sector regarding policy continuity and economic stimulus, especially commerce”

• There are opportunities to buy on dips with CP All as top pick; utilities are a good way to hedge against economic uncertainties

Krystal Tan, economist at Australia & New Zealand Banking Group Ltd.:

• “The decision won’t be taken well by markets given the rise in political uncertainty and the associated downside risks to growth stemming from potential unrest and delays to economic policy implementation. We need to see whether we end up with a prolonged political vacuum.”

Wei Liang Chang, macro strategist at DBS Bank Ltd.:

• Prolonged uncertainty over Srettha’s replacement “could hinder policy formation and implementation, which pose downside risks to growth”

• Baht could ease with foreign equity investors turning more cautious and the rates markets could also anticipate a more dovish Bank of Thailand outlook

Nirgunan Tiruchelvam, an analyst at Aletheia Capital:

• Events raise uncertainty in the market, though history shows that stock market has been able to flourish despite political upheaval

• “This is an opportunity for investors to see through the uncertainty and take a medium term position in Thailand”

• There’s opportunity to buy stocks exposed to tourism including Airports of Thailand and Minor International

(Updates market moves, adds comments from Macquarie and Robeco)

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