The SET Index climbed 1.5 per cent yesterday on investors' hopes of a political compromise between Prime Minister Thaksin Shina-watra and opposition parties over political reforms.

However, analysts and traders warned that the optimism might be short-lived as the stock market was still feeling the pressure of political issues, including anti-government rallies and efforts between the parties to reach an agreement.

The index plunged into negative territory shortly after the bell rang yesterday as investors, spooked by both the likelihood of an opposition boycott of the election on April 2 and Sunday's massive rally demanding Thaksin's resignation, sold. However, the bourse rebounded late in the trading session following reports that the prime minister had agreed to discuss political reforms with opposition party leaders.

Meanwhile, the baht grew stronger against the US dollar due to the strength of regional currencies.

Despite the mounting political turmoil, the Thai bourse has surged 3.5 per cent over five successive trading days, on the back of a buying spree by foreign investors. Yesterday alone, foreigners bought shares worth a net Bt4.72 billion.

The stock market peaked at 753.55 yesterday before weakening slightly to close at 753.10. Turnover was moderate at Bt29.33 billion.

Banks, finance and broker stocks were at the centre of the buying spree. Bangkok Bank rose 4.3 per cent to Bt120, Siam Commercial Bank was up 7.4 per cent at Bt65, Kasikorn-bank rose by 3.7 per cent to Bt69.50, Bank of Ayudhya jumped 4.6 per cent to Bt18 and Siam Panich Leasing Plc surged 19.5 per cent to Bt38.25.

 Visit Ongpapattakul, deputy managing director of Trinity Securities, said that Thaksin's soft remarks about political reform early yesterday morning boosted market sentiment. Later in the day, political party heads were talking about political reforms.

Visit warned, however, that the stock market remained under pressure because of uncertainty.

If the government can proceed to the April 2 election as scheduled it will be a boon to the stock market, he said, adding that if it is delayed, it will have an adverse impact on the mega infrastructure projects.  "The later a new government is set up, the greater the chance that Thailand will lose its opportunity," he said.

Visit explained that investors were rushing to snap up defensive and dividend-play stocks, including banks, as they consider them a safe haven amid the political turmoil.

Capital Nomura Securities said dark clouds were still hanging over the stock market in the form of a possible opposition boycott of the upcoming general election and efforts by the political parties to reach agreement on political reforms.

The broker suggested investors should commit only 70 per cent of their investment budget and resort to a selective buying strategy. "Banks and property development stocks are recommended for investment," it said, "while brokers stocks are recommended for short-term trading."

"I believe Thaksin and the opposition leaders will be able to work something out to make the upcoming election happen," said Tawan Deva-aksorn, managing director of Prudent Siam Securities. "A clearer picture on the political front will be positive for the market."

The baht opened yesterday at Bt39.34 against the US dollar, up Bt0.10 from Friday. Traders shrugged off the country's political uncertainties, according to Usara Wilaipich, a senior economist for Standard and Chartered Bank.

The baht strengthened against the greenback in tandem with regional currencies, as traders stepped up purchasing of the yen on expectations that Japan will raise rates later this year and after the dollar tumbled to a one-month low against the yen on Asian markets.

Usara said the baht might strengthen further against the greenback if Thai Rak Thai agreed to constitutional amendments.

"If it doesn't compromise, we will have to wait and see," she said. "Still, the baht should benefit from external factors."

Siriporn Chanjindamanee

The Nation