Politics and upcoming election will determine stock market performance

Politics is far more important than interest rates where the Thai stock market is concerned, because people are waiting for the exact date of the general elections to be announced, Christopher Wood, managing director and global equity strategist at Hong Kong-based CLSA Research, explained.

Historically, the stock market stays bullish before an election. "What matters for Thailand now is when the general election is going to be held. It would be a chance for the government to increase its majority, which would likely allow the market to assume this government would spend a longer period in office. If the government succeeds in increasing its majority, it would allow for a re-rating of the market," Wood said.

Last week, Prime Minister Abhisit Vejjajiva said elections would be held in the first half of this year.

Amid the inflation jitters spreading across Asia, Wood expressed no concerns about Thailand where headline inflation rose 3.03 per cent in January from a year earlier and core consumer prices edged up 1.32 per cent.

"It's low. I don't think it's such a big deal. If we have a famine, we get an oil spike and inflation will go high. That will be a problem," Wood said. Asked whether there should be any concerns about inflation if Thailand's diesel subsidy ends, he pointed out that the increase in inflation would be short term and a one-off thing.

The interest rate in Thailand is still low in relation to the country's history, and if the Bank of Thailand raises its policy rate by 75 basis points this year, that would not kill the stock market, Wood said.

The Kingdom's biggest risk lies in the possibility of renewed unrest if former prime minister Thaksin Shinawatra becomes active again, the global equity strategist said. Political instability has made the Thai stock market trade at a low value for several years.

"The biggest risk in Thailand is quite simple - renewed political instability. There is more evidence about confrontation between two political groups. The issue is when Thaksin will become active again. It seems quite likely that the government will increase its majority, since the opposition is getting increasingly fragmented. My best case is assuming the election is held in the first half [of this year], the government should be able to increase its majority. If that's the case, it should be positive for the stock market," Wood said.

Another risk is a possible increase in oil prices, which could also upset the Thai stock market, he warned. Oil prices have been forecast to stay in a fundamental range of US$80 to $90 (Bt2,466 to Bt2,774) per barrel.

"There's no fundamental reason for the price of oil to go up. It's a commodity that is rising and maybe some speculators will speculate," he said.

The world still faces uncertainties in developed economies. The fragile recovery of the US economy and Europe's ongoing sovereign debt problem remains a risk for any market in the world and the unrest in Egypt is increasing the risk of a possible spike in world oil prices, Wood said.

The equity strategist also pointed out other positive factors for the Thai stock market, including lower stock prices, rural policies left behind by previous governments, the planned expansion of Bangkok's underground metro system, Thai commercial banks' expansion of loans and the currency's likely appreciation in the future.