In or Out: Thai Stock Investors Weigh Escalating Political Risk

(Bloomberg) -- In a span of three days, more than $3.85 billion has been erased from Thailand’s stock market as political risks heightened ahead of national elections.

The nation’s benchmark SET Index slid 1.3 percent in that period. In a twist, Thai Raksa Chart, the party linked to exiled former leader Thaksin Shinawatra, saw a bid to make Princess Ubolratana Rajakanya its prime ministerial candidate rapidly unravel Feb. 8 as her brother, King Maha Vajiralongkorn, publicly opposed the move. Activists petitioned the Election Commission about disbanding Thai Raksa Chart for violating election rules.

Uncertainty surrounding the Thai ballot will have an impact on equities, said Nader Naeimi, head of dynamic markets at AMP Capital Investors Ltd. in Sydney. Investors are bound to be involved in some profit taking after markets started the year by pricing in “a lot of good news around the Fed, around central-bank policy,” he explained.

In or Out: Thai Stock Investors Weigh Escalating Political Risk

Foreign investors have sold $71 million net in Thai stocks in the past two days, according to data compiled by Bloomberg. On Monday, the SET Index fell the most in almost a month, and stocks linked to Thaksin also had a wild ride: SC Asset Corp. and Praram 9 Hospital Pcl, both companies controlled by his family, slumped after rallying last week, while Intouch Holdings Pcl -- which Thaksin founded before selling the entity to Temasek Holdings Pte -- slipped almost 5 percent.

For Naeimi, the political upheaval would be a good time to make purchases as the market correction won’t last for long.

“Thailand is used to some volatile political situations, so I don’t think it’s any surprise,” he said. “Every now and then these things flare up, it doesn’t have a long-lasting impact.”

Disbanding Thai Raksa Chart could anger Thaksin’s supporters and boost junta leader Prayuth Chan-Ocha’s push to stay as prime minister after the March 24 election. Prayuth led the coup in 2014 that ousted Yingluck Shinawatra, Thaksin’s sister, and is expected to have the support of the military-appointed Senate.

A clear victor after the vote would settle investor anxiety, said Jingyi Pan, a strategist at IG Asia Pte. Looking back, the certainty of leadership that came with the junta (also known as a military rule) taking over reassured them, she said.

Riding It Out

Politics in Thailand hasn’t been smooth sailing in the past, and investors with money in the market are generally comfortable with the possibility of a turbulent ride. Should investors ride it out, or take the money and run?

“We are staying invested,” said Michael Reynal, a money manager at Sophus Capital. While the recent events are worrisome, he is aware that Thai politics tends to be “erratic” but the stock market has companies with strong growth outlooks trading at attractive valuations.

For Ingrid Baker, a portfolio manager at Invesco Advisers Inc., the plan is to stay the course. “We tend to ride these things out,” she said. “If things get very cheap, then we might add.”

Exotix Capital analyst Nirgunan Tiruchelvam predicts the consumption sector will be “the clear winner” in the run up to the vote as spending on everything from snacks to posters and alcohol will increase.

©2019 Bloomberg L.P.