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Investor confidence set to rise after lifting of political ban

INVESTORS should have more confidence in the economy now that the political ban has been lifted and political parties can present their policy platforms in the run-up to the general elections, an economist said yesterday.

“The market is keenly watching what policies the political parties will present to voters, whether they are long- or short-term,” Amornthep Chawla, chief researcher at CIMB Thai Bank, said.
The National Council of Peace and Order lifted the ban on political activities yesterday. 
However, Amornthep said investors might adopt a wait-and-watch approach on the next government and look at its policies before making new investments. 
“If the next administration is a minority government, then it may find it difficult to implement its policies, which could have an adverse impact on confidence,” he said. 
However, he is optimistic that the elections will boost confidence and the government will be able to negotiate free-trade agreements with countries that shunned Thailand after the 2014 coup. 
Besides this, there are many other challenges awaiting the next government, ranging from industrial reforms to dealing with the widening gap in income. 
Private consumption may slow down, and car sales may also drop next year. 
Consumption by low-income groups has not yet recovered due largely to the slump in the prices of farm products. Farm products will continue to play a key role next year, in terms of spending by low-income earners. 
Amornthep said the other big threat to the Thai economy next year is the impact of the US-China trade war, especially if it escalates. 
China will probably import fewer Thai products if the trade tensions continue. Another factor that may affect imports from Thailand are China’s large stock of raw materials, such as rubber sheets. China’s gross domestic product (GDP) may expand between 6.4 and 6.5 per cent, compared to 6.7 per cent this year. 
CIMB estimates that Thailand’s growth will be 3.7 per cent next year, less than the anticipated 4 per cent this year.
“Slower growth is not necessarily bad, but the key is whether the growth will be sustainable,” he said, adding that slower growth next year might be in line with a global slowdown.
“There are no outstanding factors to drive the economy next year,” he said.
He also predicted that the Bank of Thailand might start increasing the policy rate in March, and may do it again later to bring the rate up to 2 per cent from 1.5 per cent at present. 
Amornthep also expects the US Federal Reserve to increase the rate twice next year from the previous market projection of three times. 
Given such a scenario, capital should start flowing back to Thailand and other emerging markets, he said, adding that the baht might start strengthening to Bt32 against the dollar from Bt32.50 this year. 
Foreign investors have pulled investments worth Bt280 billion out of the Stock Exchange of Thailand so far. He also reckons that the overall volatility of global financial markets will not worsen next year. 
“The announcement to allow political activities to resume in the country is a milestone that will increase the confidence of investors in the Thai economy,” said Yunyong Thaicharoen, first executive vice president and head of Siam Commercial Bank’s Economic Intelligence Centre.
“The announcement itself will have minimal impact on markets or investor confidence in the economy, but the election will certainly have an impact on the market. Hence, the announcement to allow for political activities will have a positive impact on investor confidence in the economy, but the signs of rising in confidence will not be immediate,” he cautioned.
“Furthermore, this announcement means that political parties can now more openly share their policies with the public, which is expected to be watched closely by investors and those within the private sector,” he said.

Published : December 11, 2018