Stock market tumbles on sensitive court decisions

The SET Index started the day with a mild fall and headed further south shortly after the Constitution Court ruled that a joint communiqué with Cambodia was unconstitutional. Shares hit the day's bottom at 719.51 points before recovering to end at 772.50. Turnover was thin at Bt11 billion.

The Supreme Court was also due to rule on disqualifying the People Power Party's former deputy leader Yongyuth Tiyapairat for election fraud.

Foreign investors' sell-off in Thai shares continued as seen by selling pressure on big market-cap stocks. They dumped shares with a net value of Bt3.2 billion, raising their net pull-out so far this year to Bt62.5 billion.

The energy sector index lost 1.95 per cent, banks slumped 0.89 per cent and property was off 1.17 per cent.

Phuwadol Lapudomsuk, strategist for Asia Plus Securities, said investors unloaded shares to mitigate risk ahead of the Supreme Court's ruling on Yongyuth after trading closed.

"If the court does not uphold the Election Commission's red card against Yongyuth [the ruling that he committed election fraud], the Thai stock market would go up but not significantly, due to foreign investors' lingering sell-off," he said.

The next resistance level today is at 715 points and the support level is at 730 points.

The Supreme Court upheld the EC's red card against Yongyuth. As he was a deputy leader of the PPP when he committed the poll fraud, the Election Commission will ask the court to rule if the fraud was involved with the PPP and that might lead to disbanding the party.

The sharp slump in regional stock markets also dampened the local bourse's sentiment, Phuwadol said.

An analyst at a local brokerage said investors would panic after the Supreme Court upheld the EC's red card and the government might either dissolve Parliament or the Cabinet might resign en bloc.

"Political tensions would mount and it would heavily pressure investment sentiment. The SET Index has a resistance level at 700 points. There might be a political vacuum amid the poor economic atmosphere and spiralling inflation," he said.

The stock market would rebound if a snap election is held, he said.

Finansa Securities said the government has few choices.

It could continue to manage the country and let the case proceed in court, he said, referring to the case against the PPP.

This option would still cast a dark cloud over the capital market and the economy.

Or the government could dissolve Parliament. This alternative would come as a boon in the short run as the People's Alliance for Democracy would end its rally.

But it would also hurt foreign investor confidence, as the government's policies would not continue and it might raise questions if the protest would be revived if the nominee party comes back to lead the next government.

 The securities house recommends to "sell" now and start piling up on stocks when the SET falls to 700 and 650 points.