Stock brokers, analysts and fund managers interviewed by The Nation see a House dissolution as likely and believe it would erode much of the current political uncertainty.

They also think that lingering political tension would only bring about a negative impact on the capital market. Despite that, investors would take a “wait-and-see” approach if the House is dissolved to see what the new government would look like.

Among three scenarios for Prime Minister Thaksin Shinawatra to choose amid the current political tension, House dissolution is the most likely seen by capital market players interviewed for this story, while the prime minister’s resignation is less expected. They said a third scenario – further lingering of the current situation – would not occur.

Teera Pootrakul, executive chairman of Finansa Asset Management, said yesterday that to eliminate uncertainty Prime Minister Thaksin Shinawatra should dissolve the House of Representatives and hold new general elections.

“The premier came from elections and the democratic system. If he wants to make this clear, he should dissolve the House,” Teera said.

Phatra Securities, in a report released on Tuesday, said the possibility of House dissolution had increased to 50 per cent from 30 per cent.

Thanomsri Fongarunrung, an economist from Phatra Securities Plc, said yesterday that Thai Rak Thai Party was likely to come back with fewer votes if there the House were to be dissolved.

“In both scenarios of House dissolution and the premier’s resignation, stock investors are likely to wait and see,” she said. “They need to evaluate the consequences of the two scenarios. They want to know whether a new Thai Rak Thai-led government would still be able to implement economic policies as quickly as the current government. If the new government has less power, this would certainly be a negative for the market.”

Thanomsri said if the situation lingered further, the low confidence among investors would only continue. Foreign investors would not inject more money into the Thai market but would not pull out either. But if the situation worsens, they may dump some investments.

Paromet Tongbua, head of research for Tisco Securities, said recently that the stock market would react positively if there was a House dissolution. However, any stock rally would likely to be short-lived.

“The market would be okay in the short-term as investors see the end of lingering tension,” he said.

Investors would focus their attention on whether Thaksin would be charged by financial authorities on any issues relevant to the Shin Corp deal during the election period, he said. This will show how much Thaksin would be able to control the situation, he added.

If he is charged during the election, the situation will be much more uncertain, negatively affecting the SET.

Paromet ruled out a scenario in which Thaksin would resign.

If Thaksin chooses to tolerate the current political tensions without doing anything, the stock market will continue to be sluggish, hovering with a small downside, he said.

Tisco Securities has kept its SET index target of 810 for the end of the year.

Wiriya Lappromrattana, assistant vice president of Kiatnakin Securities, said that Parliament’s dissolution and Thaksin’s resignation would be better choices for the stock market than chronic political tension.

If both events occurred, the stock market would react positively.

“The stock market has declined more than 40 points since early this year due solely to political pressure and this reflects the fact that politics have already been factored into share prices at a certain level,” she said.

In case the current situation lingers without violence, the stock market will decline slightly over time, said Wiriya.

“We estimate that the stock market in the short run will move in a range of 720-740,” she said.

Kobkiat Boontherawara, TMB Macquarie Securities (Thailand) took a contrary view, saying that if a House dissolution would create a political vacuum and would hurt the stock market.

He said if Thaksin resigned the impact would be less, depending only on who would be the next premier. Kobkiat foresees a Cabinet reshuffle as a third scenario, which would force investors to wait for the makeup of the new Cabinet to evaluate the situation further. 

Finance Reporters

The Nation