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SET index

Court's decision to influence market direction

Investors have been waiting on the sideline as the Constitutional Court reads its crucial verdict, resulting in the further 8.12 points decrease in the Stock Exchange of Thailand index on Wednesday.

The composite SET index ended the morning session at 1,395.89 points.

At the close, the market managed to regain some losses. However, it still closed lower from yesterday, losing 1.40 points end the day at 1,402.61 points on turnover of Bt32.8 billion.

The index today fell below 1,400 points for the first time in weeks, as political situation continues to suppress fund inflows.

Yesterday, foreign investors reversed to be net sellers in Asia with a total net sell of only US$54 million (after two consecutive days of net buying). Taiwan was the only market that faced net selling for the second day at US$85 million(versus US$4 million net sell in the prior day). Other countries, on the other hand, were with thin net buying: Thailand of US$11 million or B366 million (third consecutive day, falling 78 per cent), the Philippines of US$11 million(26th consecutive day, falling 11 per cent), and Indonesia of US$9 million(third consecutive day, falling 66 per cent). South Korea’s market was closed on a religious holiday.

"Although foreigners continued to buy Thai stocks, the buy rally has begun to decrease significantly in the two recent weeks, along with regional trend. Other pressing factors are the political situation and high P/E ratio of 15x of the SET that might limit the fund inflow. However, we believe foreign investors would still not sell aggressively during this period, rather mixing between a slight net buy and sell instead," Asia Plus Securities said in a research note.

The house noted that the Constitutional Court’s ruling would determine the movement of SET Index today, "likely to have a negative outcome".

It foresees four scenarios.

1. The case is dismissed

The prime minister’s action does not violate Section 182 (7). Yingluck will be working as the caretaker prime minister until a new government is elected. However, pressure from protest rallies would continue. In this scenario, SET Index is expected to rebound.

2. The prime minister is removed, but the government is still in action

In this scenario, it is still unclear whether the caretaker prime minister will be replaced by the deputy prime minister or a new prime minister appointed by the Senate. After the new prime minister is appointed, the establishment of the government will depend on the new prime minister; the whole cabinet might be changed. In this scenario, SET Index is expected to undergo a correction at first. Then, it would depend on who the new prime minister is and the situation and processes of the election.

3. The prime minister and some ministers are removed

This should be similar to the second scenario (the prime minister is removed, but the government is still in action). According to Bangkokbiznews, there are nine ministries that are related to the movement of SET Index. In this scenario, SET Index is expected to undergo a correction at first. Then, it would depend on who the new prime minister is and the situation and processes of the election.

4. The prime minister and the whole cabinet are removed

This is considered the worst-case scenario. There would be a complete political deadlock. Many measures would be used to obtain a new government. Each party would insist on its own measures and would not reconcile, possibly leading to a chaos. This scenario will have the

worst effect on SET Index; it would be unpredictable how long it would take to elect a new government.

"Investors should monitor the political situation very closely as it would have a significant effect on SET index. The market P/E ratio of 15 times is quite high compared to listed companies’ average EPS growth of 12 per cent," it noted.


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