Thai stocks reversed gains as opposition parties secured a solid majority in the elections

Thai stocks rose briefly while the Thai baht gave up early gains after it touched a three-month high on Monday. Investors await more tangible results from Sunday’s general elections, after preliminary results showed that the country’s pro-democracy parties secured a solid majority.

It remains to be seen which parties will eventually form the new Thai government as a coalition is needed as both opposition parties do not have enough votes to form a new government.

Reuters calculations based on data from the country’s election commission indicate that the anti-military Action Forward party led by Thai businessman Pita Limgarwinrat will win the most seats, followed by Pheu Thai.

If confirmed, it would mark a resounding rejection of the pro-military parties led by former Prime Minister Prayuth Chan-o-cha, ending nine years of pro-military rule.

Official certification of results is expected to be completed within 60 days after polls close.

The Set Composite Index briefly traded 0.3% higher at the open on Monday before paring gains and falling 0.83% in the afternoon.

The Thai baht rose 0.6% on Monday to 33.73 against the US dollar, its strongest level since February earlier this year.

Analysts expect Thai markets to be cautious initially as the results are finalized and validated.

Speaking to CNBC’s “Street Signs Asia,” Dan Veneman, co-head of APAC Equity Strategy at Credit Suisse, said there is a “good trading opportunity” for Thai markets after the election. He pointed out that the market’s performance was historically weak before the elections, but it excelled after the elections after the formation of a stable government.

“We have to keep in mind that there has been a lot of hard work in Thai politics over the years,” noted Thitinan Pongsudirak, a professor of politics and international relations at Chulalongkorn University.

“The biggest winning party should be able to form the government, but that is not the case. There are three steps to it: winning the elections is one thing, forming the government is the second proposal and the biggest challenge that will put you on the prime minister,” he told Shri Jigaragah on CNB. C in Bangkok.

The Pheu Thai Party had nominated Paetongtarn Shinawatra – the daughter of former Thai Prime Minister Thaksin Shinawatra – as prime minister, while Reuters reported that Limgarunrat “has set his sights on becoming prime minister”.

In terms of market sentiment, Veneman said he believes a stable government will be formed, and that markets will see a “post-election recovery.” But until then, he said, the Thai market will be “walking through water” for the next several weeks.

Veneman noted that opposition parties may have won a clear majority in the House of Representatives, but need the support of senators in the upper house, “and there are lingering concerns that there may be a hung parliament.”

Thailand’s House of Representatives has 500 seats and is directly elected, but the 250 members of the upper house were appointed by the junta four years ago, and the party must secure a majority of 750 seats to form the government.

With the election commission having 60 days to finalize election results, Thai markets “may not move much,” said Kasim Prunratanamala, head of research for Thailand at CGS-CIMB.

Prunratanamala told CNBC that if the Election Commission takes measures such as dissolving opposition parties, it could trigger a negative reaction in the market. “They can anticipate that this kind of action is likely to cause people to take to the streets to protest.”

Another concern for the market is that if the leading Move Forward party manages to form government, what impact will their promised policies have on the course of the campaign?

“For example, they mentioned that they will reduce the electricity tariff [could] hit the utility sector.”

There could be disruption “if there is systematic sabotage, distortion or manipulation of the results we saw yesterday” – as Sunday’s election was “a profound and destabilizing outcome of Thai politics over the past two decades”, agreed Pongsudharak of Chulalongkorn University.

“We got stuck with the anti-Thaksin cycle,” said the professor. “Now, with the victory of the Move Forward party yesterday, the Thai people have demanded change and reform.”

He noted that the Movement Forward party is “unlike Thaksin’s party”.

“First of all, it doesn’t align with Thaksin – it has a completely different agenda, it’s not a populist party per se. It wants institutional reforms to Thailand’s traditional institutions, the army, the monarchy and the judiciary – the root causes behind Thailand’s crisis of the past two decades.”

Pongsudgirak said he expects a more progressive and market-based economic policy administration than any government led by Move Forward, i.e. pro-foreigner investment, anti-trust, with more competition and small to medium-sized businesses “getting the best cut of the bargain”.

Separately, Thailand’s Q1 GDP grew 2.7% year-on-year, beating expectations for a 2.3% rise.

before the election results, Siti economist Nalin Chochuthitham wrote in a note on Sunday that Thailand’s economic outlook is likely to change slightly in the coming months.

“We expect first-quarter GDP growth to remain subdued, but sufficient to indicate that the economy bottomed out in the fourth quarter of 2022, which will support the build-and-operate (BOT) model. [Bank of Thailand]higher interest rate,” she said.

The Bank of Thailand currently has a policy rate of 1.75%, and will meet on May 31. Citi expects the Bank of Thailand to raise its benchmark interest rate by another 25 basis points.

Chutchotitham also expects the new government to be confirmed in August, and the 2023 fiscal budget for the entire economy is due to be announced sometime in the last quarter of the year.

“In the medium term, the economic outlook may see increased risks of populist economic policies that may raise questions about future fiscal discipline,” she wrote.

— CNBC’s Jihye Lee contributed to this report.