Thailand's economy posted better-than-expected numbers on Monday. But markets took their lead from the surefire period of uncertainty after Sunday's election delivered a heavy victory for parties in opposition to the ruling military-installed government.
It's a win for pro-democracy forces. But there will now be a period of horse trading as the opposition Move Forward and Pheu Thai parties haggle over the coalition government that they have agreed to form.
Move Forward's charismatic leader, the rice-bran-oil tycoon Pita Limjaroenrat, will become prime minister. The Harvard-educated businessman is a youthful 42, and will replace ex-Army commander-in-chief Prayuth Chan-ocha, who took power in a 2014 coup and was then installed as prime minister.
Pita defeated the youngest child of former Thai leader and exiled tycoon Thaksin Shinawatra, Paetongtarn Shinawatra, who ran for prime minister at virtually the earliest opportunity since she's 36 years old. Thai rules insist that anyone running for national office be at least 35.
It was also a win for a party that supports Thailand's recent liberalization of marijuana. The Bhumjaithai Party, which is pro-establishment, won 71 seats in the 500-member House of Representatives, which puts it a creditable third. That's a gain of 21 from their showing in the last election in 2019, and makes it unlikely that Thailand will roll back new rules that essentially legalize the growing and sale of cannabis, one way Thailand hopes to kickstart its tourism-driven economy.
Shinawatra's Pheu Thai or "For Thais" party has pledged to support Move Forward, having finished second. The details of quite how that will happen or what role Shinawatra will play haven't been settled.
Sunday's House of Representatives elections only comprise the lower house of the Thai congress. The military appoints all 250 seats in the Senate. But given the landslide for the pro-democracy parties, it's likely the military will seat to limit the new leader's power rather than attempt to bar Pita from taking office.
Prayuth said he would respect the results, after his party finished a distant fifth. Turnout was a record high, at 75.2%. Move Forward has reached out to five opposition parties as potential partners. If they all lend their support, the coalition would command 309 seats in the 500-seat House of Representatives.
Thai stocks lost 1.3% on Monday in the form of the Stock Exchange of Thailand Index. They have been Asia's worst performers to date in 2023, with the Thai market now down 7.6% after today's showing. In Asia, only Southeast Asia's emerging markets are in the red so far this year, with Japan's developed market up an extremely healthy 13.2%, and even lagging Chinese equities are posting narrow year-to-date gains.
However, with the election now past, Thai stocks could now be a decent contrarian play. Today's showing still reflects the period of uncertainty over the outcome of the election, but the direction toward a forward-thinking pro-democracy coalition is clear. The military has governed, often in a ham-fisted way economically, for the better part of a decade.
Thai GDP grew 2.7% in Q1, fresh data from the National Economic and Social Development Council show on Monday, as the tourism sector kicks back into gear and Chinese tourists in particular return. That's virtually double the 1.4% pace in Q4 2022.
A Reuters poll of 20 economists had forecast a 2.3% increase for the Q1 economy. The economic council forecasts 28 million tourist arrivals this year, far higher than the 11.2 million tourists who arrived last year. International visitors accounted for 11.5% of the entire Thai economy in pre-pandemic 2019, a far higher fraction than is typical for Asian nations. 2019 saw a record 39.8 million international travelers arrive in Thailand.
One of the key issues that the new coalition must sort out is how to handle its relationship with the monarchy. Move Forward made changing "Article 112" a key part of its platform. That's the law that forbids criticism of the Thai king, queen and heir apparent, with those convicted of defamation or insulting those royals sentenced to a minimum of three years, and as many as 15 years in prison.
Since the military typically claims to be acting in the name of the king, Move Forward feels the law was abused to silence critics during the years of the military junta and the government it installed. Move Forward says it will, well, move forward with its proposal to alter the law, but its coalition partners have not made the same pledge. With its 151 seats, however, Move Forward would at least have enough votes on its own to propose a change.
There may be public support for a shift. Move Forward swept 32 of 33 seats available in Bangkok, the capital, a surprisingly strong showing. It won the support of students and young people in particular.
The political landscape has been in turmoil in Thailand since the death in 2016 of the adored King Bhumibol Adulyadej, who reigned for 70 years. His successor and only son, Maha Vajiralongkorn, does not command nearly the same adoration or respect. The new king rode out a series of nationwide protests as well as the pandemic in Bavaria, in Germany, where he has spent much of his life.
The Thai baht did strengthen a slim 0.5% after the election, now trading at 33.8 baht to the U.S. dollar, after weakening above 38 baht to the greenback in October. The currency typically faces strong trading resistance at 30 to the U.S. dollar but could strengthen in that direction, goosing any unhedged equity returns.
The iShares MSCI Thailand ETF THD is the purest play on Thai stocks. It attempts to capture large-cap, mid-cap and small-cap exposure by tracking the MSCI Thailand IMI 25/50 Index. The index sets rules to limit the influence of large caps, stipulating that at the end of each quarter no more than 25% of assets can be allocated to a single issuer, and the sum of the weights of companies that make up more than 5% of the fund should not exceed 50% of assets.
