Price Instability Adds To Thailand's Political Uncertainty

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EDITORIAL

Price instability adds to political uncertainty

By The Nation

Investors are becoming nervous about Thailand ahead of an election that many predict will not end the country's deep social divisions

Ahead of the July 3 election, there have been some different opinions regarding investment in the Thai stock market, the country's ongoing political instability and also the problem of growing inflationary pressure. Some foreign investment houses have recommended that investors sell Thai stocks for profit taking due to growing concern over the political situation, according to a report on CNBC last week. Morgan Stanley argued that foreign investors have overweight position in the Thai stock market.

With the tight election battle between the Democrat and Pheu Thai parties and the history of political instability, Morgan Stanley believes that there will be more downside risks than upside gains in the current investment environment. Daiwa Capital Markets also shares a similar view, saying that investors should get out of the Thai stock market because of the risk of further political unrest.

But Goanpot Asvinwichit, the economic head of the Chat Patana Phue Pandin Party, speaking on Asean TV said that if foreign investors started to sell Thai equities, it would be time for Thai investors to buy up the stock market. One local broker said with tongue in cheek "the best time to buy Thai equities is when there is blood on the street".

Still, most investors appear to believe that the Democrats are more likely to make a return to government. The coalition partners will close ranks behind the Democrats. In spite of a surge in the popular opinion polls for the Pheu Thai Party, its de facto leader Yingluck Shinawatra will not be able to form the next government and become Thailand's first female premier.

There are still several political factors constraining her rise to power. Newin Chidchob, the de facto leader of the Bhumjai Thai Party, interestingly has predicted that neither Abhisit Vejjajiva of the Democrats nor Yingluck will become prime minister after the election. This has added to the intense speculation that unforeseen political events will come into play to sway the election outcome.

Politics aside, the Thai market and the Thai economy will also be affected by the uncertain outlook in Japan following the recent triple disasters of earthquake, tsunami and nuclear meltdown, which has created a power supply shock. Other external factors affecting Thailand include the growing sovereign debt crisis in Europe and the inflation-infected monetary expansion in the United States. These global factors will weigh heavily on the Thai market, whose strength hinges on the performance of exports.

In the meantime, the Thai inflation rate is becoming a cause for greater concern. The core inflation rate might breach 3 per cent in September, according to Achaana Waiquamdee, the deputy governor of the Bank of Thailand. The central bank is now anchoring the core inflation rate - which excludes food and energyprices - at 0.50 to 3.0 per cent. Last month the headline inflation rate, including food and energy, surged to 4.04 per cent, the highest level since January 2010.

If inflation continues its strong upward trend, it means that the central bank will have to raise interest rates aggressively to bring rising prices under control.

That said, Thailand remains a strong growing economy, which is suffering a negative interest return. The job of the central bank now is to focus on normalising the interest rate and also bringing inflation under control in an environment where general prices as well as fuel costs are rising and hurting low-income people.

Overall, economic growth is expected to reach the 4 per cent range, compared to almost 8 per cent last year. This is well in line with expectations as price instability and political instability are currently of greater concern than economic growth.

-- The Nation 2011-05-31

[frenchcaptainbob]

Don't confuse "INVESTING ", and "GAMBLING". In case number one, what you want is a fair return on your money and possibly no risk. Is Thailand considered to match that situation ? There are many,many other places in the World to attract your money. ( same for vacations , by the way )

If you are a born gambler, and have no time to visit foreign casinos out of Thailand, then drop at the SET. Though you can hardly get the thrill: YOU, darn foreigner WILL LOSE, whatsoever...

Good investing everybody ! :jap: