Political factors hold key to 2015 SET movement

“The demand for an election will be a critical factor pressuring investment in the stock market next year, but we don’t think the election could happen by next year,” Paiboon Nalinthrangkurn, chief executive officer of Tisco Securities, said at the Tisco Wealth Investment Forum yesterday.

Some people want to see the general election happen quickly, but the process of national reform and constitution drafting may take much time, said Paiboon, who is also a member of the National Reform Council.

According to the NRC’s timeline, NRC members will submit comments and suggestion to the Constitution Drafting Committee within 60 days. The suggestions will be seen after November 4, he said.

The charter drafters will have to complete the new permanent constitution within 120 days of receiving the comments and suggestions from the NRC. 

The constitution will be completed around September, so the general election will be held by the end of next year or in 2016.

For stock investors, recommended are defensive plays such as food, infrastructure and turnaround industries like tourism.

The stock market doesn’t have as much upside as before, as Thailand is giving priority to national reform, not economic enhancement, while the way to reform is unclear, so investor confidence is unlikely to be revived. Investment in asset classes next year will be the most challenging in six years because the markets will face lower liquidity from the expected end of quantitative easing by the US Federal Reserve, which is expected to announce the end of QE today.

The capital market has been enjoying liquidity due to the QE. The US is the biggest market for fund managers. Of the US$100 trillion under global fund management, half are in the US. 

When QE is retired, fund managers will be forced to become more cautious on investment unlike before, when they could diversify portfolios to high risk, high return assets.

Besides low liquidity, the uptrend in interest rates will also throttle investment in the capital market. When QE is unwound, the US will start to consider raising its interest rate, which will increase the cost of investment and the price-to-earnings ratios of stocks. 

The climb in interest rates will affect the bond market, so investors should hold short-term instead of long-term bonds to avoid loss of capital.

However, the US is expected to face a quandary in looking at the timing of raising interest rates, as the economy of the European Union has not been able to recover and the EU still needs to inject money through QE. 

The EU’s QE is unlikely to bolster the capital market as much as the US QE because the size of fund management in the EU is small. Funds under management in Germany, which has the strongest economy in the EU, are $2 trillion versus $100 |trillion under global fund management in the US.