The SET index plunged at midweek after the Constitutional Court ruled against Srettha Thavisin in an ethics case, removing him as prime minister.
However, shares rallied as Paetongtarn Shinawatra was quickly confirmed as his replacement, and investors looked forward to the formation of a new cabinet.
Losses earlier in the week were led by domestic plays amid worries that the government's flagship digital wallet stimulus might be abandoned. Those concerns persist and the outlook for Thai shares remains negative pending clarification.
Thai politics will likely be more stable this week now that a new prime minister was elected. The next key step is the appointment of cabinet members, likely within 15 days based on historical data.
However, investors are not ready to exhale yet. A change or an end to the digital wallet scheme would necessitate a revision of economic forecasts. As well, there is concern that passage of the budget for fiscal 2025, which starts on Oct 1, could be delayed slightly.
Nevertheless, there are some factors bolstering sentiment in the Thai stock market. They include:
- Anticipation of the new Vayupak Fund 1, with units worth a total of 100-150 billion baht to be offered to investors within the current quarter, followed by listing on the SET;
- Buying by Thai ESG funds as investors accumulate units to enjoy tax benefits should the market drop sharply;
- Clarity on second-quarter earnings and interim dividends;
- Faster than expected imposition of measures to improve stock price stability from Sept 2.
We believe the final measure will be positive for Thai shares as certain restrictions will now kick in at the 10% level for ceiling and floor prices (similar to the system used in Taiwan), discouraging short sellers. The previous 30% limit allowed speculators to make substantial profits from short selling.
Meanwhile, more stringent cash balance, circuit-breaker and program trading rules should also help calm investors and tame their buy/sell behaviour, as price manipulation by robots slows.
We also recommend investors monitor a public forum featuring former prime minister Thaksin Shinawatra, the first since his return last year, on Aug 22. His comments on the economy or markets could provide trading cues.
On the external front, investors will be watching events in Jackson Hole, Wyoming from Aug 22-24, when the US Federal Reserve holds its annual economic conference and gathering of central bankers from around the world. We anticipate the Fed's communication to tilt towards an interest rate cut.
Negative domestic factors include political uncertainty until the new cabinet is in place, economic policy uncertainty and the fate of the digital wallet, and unresolved household debt, which remains a long-term structural problem facing Thailand.
Outside Thailand, keep an eye on US economic indicators for any signs of a possible recession, though recent inflation, employment and retail sales data have been more favourable.
As the US election campaign enters the home stretch, expect more discussion about international political and economic policy.
