By David Chao, Global Market Strategist, Asia Pacific
Our expected outcome for the election
- We expect that the elections will go ahead as planned. The pro-military Palang Pracharath Party (PPP), other pro-Prayut parties and the Democrat Party will align in order to win the necessary Senate seats to form a majority. The implementation of the new electoral system and the re-drawing of constituency boundaries further increases the likelihood of this outcome.
- We expect continued “noise” and near-term turbulence ahead of the election. Recent events such as Princess Ubolratana’s candidacy for the PM position, recommended dissolution of the Thai Raksa Chart party by the Election Commission (EC), #Coup2019 rumors on social media, the 15 day suspension of Voice TV, and discrepancies in opinion polling have ratcheted up the possibility that the election day may be delayed or suspended.
- However we do not foresee these events as being enough to warrant another election delay, and the threat of a military coup is largely ruled out. The trump card is His Majesty the King, who has the power at any time to force a suspension or cancellation.
Things to watch out
- One important upcoming catalyst is the 27 February initial ruling by the Constitutional Court on whether it will disband the Thai Raksa Chart political party. Following petition by the EC, the court will rule whether Thai Raksa Chart violated any laws after the party invited Princess Ubolratana to be its candidate for PM. If the Constitutional Court rules to disband the party, we would expect large-scale disruptive protests by pro-Taksin supporters that could lead to an election delay.
Impact on Thai economy
- In the last quarter of 2018, Thailand’s economy grew at its fastest pace for the past six years and has expanded significantly since 2014 on higher domestic demand and tourism. Thailand’s current account surplus and strong economic fundamentals have bolstered the THB, which has appreciated the most against the US dollar among all Asian currencies since July 2018 (chart), and I expect it to remain strong for the first quarter. However, the country has struggled to attract foreign direct investment, with flows still below the levels seen before the 2014 coup as a percentage of the economy and lagging behind its Southeast Asia neighbors.
- We expect Thailand’s export-oriented economy to slow in 2019 due to global macro-economic variables such as the US-China trade war, however we are optimistic that with the election overhang removed, FDI will continue its year over year increase. Upgrading workforce skills and significant infrastructure investment as part of the US$54bn development plan along the Eastern Economic Corridor further support this view.
Investment Implications
- We think that the planned Thai elections will be a positive catalyst both for Thailand-listed companies as well as for the wider Thai political economy.
- The election, planned for 24 March will be a removal of a key overhang for investors – principally because elections are being held finally, after five delays in five years.