Reasons of change

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MARKETS

Majority win will help Thai shares

By Siriporn Chanjindamanee

The Nation

The Stock Exchange of Thailand will likely react positively if either the Pheu Thai Party or the Democrat Party wins a clear majority, chairman of the Federation of Thai Capital Market Organisation (Fetco) said.

However, the SET Index could plunge if neither party is able to form a majority government, Fetco chairman Paiboon Nalinthrangkurn warned.

Foreign investors stand ready to return if there is a stable government to run its policies without political unrest.

Paiboon said that there were three likely scenarios:

n If the Pheu Thai Party wins the elections and has more than 250 seats in the House of Representatives, the stock market will react positively in the initial period due to the government's legitimacy and absolute control. Whether the stock market can perform even better would depend on the government and its economic policies. The market has relatively negative expectations if the Pheu Thai forms the government.

nIf the Democrats win the elections and combine with a third party to form a coalition government, the Thai exchange will also react positively as many people expect the Democrats to continue running the government with consistent economic policies. Whether or not it will continue the policies efficiently will need to be monitored.

nIf the two major parties are quite close in the number of seats, the situation will have negative effects on the stock market. In this situation, the SET Index is expected to fall about 10 per cent to 900 points due to delays in government formation and implementation of the economic policies.

He said whatever the scenario, the process of government formation must be quick. Overseas investors do not pay attention to which party will form the government. Rather, they will look at the practicality of government policies and fiscal discipline.

"Earlier, overseas investors sold off Thai stocks. That did not mean they did not like the Pheu Thai Party. But they have fears of political unrest. If the Pheu Thai wins the elections, has effective economic policies and gains confidence, overseas investors will return to invest," said Paiboon, who is also chief executive officer at Tisco Securities.

Paiboon called for national reconciliation and avoidance of political unrest. Besides, Thai capital markets needed to developed constantly because of their major role in the economy. If the law related to the stock market's demutualisation passes the Cabinet and Parliament, the stock market will be able to restructure as a public company and boost its regional competitiveness. This is in line with the capital market development plan to have the demutualisation within 2012.

Some 40 securities firms are also required to adjust themselves due to more interconnected markets in the region. It might be difficult for Thai securities firms to focus solely on domestic business. After a joint collaboration between the SET and other exchanges in Asean, there will be various types of products with interconnected trading. Paiboon said the securities companies had already started adjusting themselves, as next year will see the liberalisation of the commission.

Despite the liberalisation next year, the number of brokerage firms will likely remain the same due to its small number and daily trading volume of Bt25 billion to Bt30 billion. Thailand has 40 brokerage firms, compared to Singapore's 400 and Turkey's 100. The daily trading value is likely to remain at this level due to expected economic expansion next year.

Next year could see Thailand's economy continue its expansion. The Thai listed corporate earnings growth will be at 15 per cent as there is no pressure from interest rate and inflation. In Asia, inflationary pressure and tightening will be also less next year.

Besides, the US and European economies are expected to recover next year and raise interest rates once their economies start growing.

"The Thai economy is projected to continue its expansion next year with expected listed corporate earnings growth of 15 per cent. This could support a rise in the SET Index. In 2013, the earnings growth is likely to expand and the SET Index is likely to reach 1,700 points," Paiboon said.

From today until Friday, Tisco Securities will have a roadshow with seven listed companies, and meet about 50 fund managers in France and England. Most of these funds invest in the Thai stock market. The purpose is to update the situation in Thailand after the elections for the overseas funds.

The seven listed companies are: CP All, Charoen Pokphand Foods, PTT Chemical, PTT Aromatics and Refining, Minor International, Tisco Financial Group and Krungthai Card.

-- The Nation 2011-07-04