The Stock Exchange of Thailand (SET) index is expected to move sideways in a narrow range until there is clarity about the new government, with the formation of a new administration unlikely to extend beyond July, says Asia Plus Securities (ASP).
The benchmark index is projected to move in a range of 1,600-1,660 points during the post-election period as a new government coalition has not been finalised, said Therdsak Thaveeteeratham, ASP's executive vice-president.
"This is a negotiation period before the Election Commission announces the official results on May 9. Government formation may take more time as this is the first election under the new constitution," said Mr Therdsak.
Thailand is not expected to enter a political vacuum during this formation period, with the incumbent administration remaining in charge until the new prime minister is chosen, he said.
Yesterday the Pheu Thai Party announced the formation of a seven-party coalition government with 255 MPs, vowing to stop the National Council for Peace and Order from returning to power.
Shortly after the announcement, the pro-military Palang Pracharath Party held a press conference to announce it is negotiating with other parties to form a coalition government, while reiterating the importance of popular votes as they reflect voters' preferences.
Mr Therdsak said a positive outlook in the second half is supported by domestic political factors, particularly the newly elected government, despite some hiccups related to formation of the new administration.
With a new government likely in place by July, this should be a positive development for Thai politics and attract foreign inflows to the country's capital market, he said.
"Market dynamism will return when the new government starts working, which is unlikely to be before July," said Mr Therdsak.
As a base case scenario, the SET index is projected to finish at 1,759 points with a price-to-earnings (P/E) ratio of 16.5 times this year, according to ASP.
The worst-case scenario could happen if the selection process for a new prime minister is prolonged. The new constitution does not indicate a specific timeline to select a new prime minister, in stark contrast to the previous constitution that stipulated the position must be named within 30 days after parliament reconvenes, said Mr Therdsak.
In any case, the stock market's P/E ratio should not be lower than 15 times and the benchmark should hover at 1,599 points, he said.
"Factors prompting capital outflows [from Thailand's capital market] are quite limited after the US central bank signalled no movement in the fed funds rate, which pressured the US bond yield to decline to a 24-month low at 2.4%, lower than the 10-year Thai government bond yield at 2.58%," said Mr Therdsak.
The lower US Treasury yield relative to the Thai government bond yield has prevented capital outflows and attracted foreign capital inflows into domestic bonds instead, he said.
"Foreign funds have returned, parked in bond markets where the yields are higher than the US Treasury, before returning to stocks," said Mr Therdsak.
