Foreign investors bought shares with a net worth of almost Bt15 billion yesterday, while local institutional and retail investors unloaded Thai shares with net values of Bt14 billion and around Bt900 million, respectively.

However, stock analysts warned that turmoil could return if political reforms disappoint the electorate and there could be more problems if it became clear that Thaksin was still pulling the strings of the next government.

Thai shares began the day with a rise and strongly headed upwards to the day's height of 773.12 at noon before slightly weakening to close at 768.07. Turnover was brisk at Bt51.07 billion.

Blue chip stocks were at the centre of the buying spree. Siam Commercial Bank was up 6.8 per cent at Bt70.50, Krung Thai Bank surged 5.1 per cent to Bt12.30, Bangkok Bank chalked up a 4.4-per-cent rise to Bt118, Advanced Info Service Plc jumped nearly 7 per cent to Bt93, PTT Exploration and Production Plc rose 2.9 per cent to Bt576 and PTT increased 3.3 per cent to Bt252.

The positive response was not restricted to the bourse. The baht recorded a one-year high against the US dollar yesterday and a three-month high in trading volume.

The baht began the day at between Bt38.48 and Bt38.50 to the dollar, higher than Bt38.63 to Bt38.65 on the previous day. It climbed to a peak of Bt38.29 in intra-day trading before easing slightly to close at Bt38.38 to Bt38.40.

Kim Eng Securities (Thailand) Plc chief executive Montree Sornpaisarn said stock market investors were in a state of euphoria, driven by Thaksin's announcement that he would not accept the position of premier in the next government.

However, he said the momentum would be short lived because the political turmoil might not be completely over.

"It is still inconclusive, whether the turmoil will come to a close. A clearer picture should be seen after His Majesty's 60th coronation anniversary on June 9," Montree said. "Politics is always changing.

"The SET index is likely to reach 780 to 800 points this year if the political situation improves. We might consider adjusting our SET index target this year, but I cannot tell you at the moment because we would like to digest other factors," he said.

Phatra Securities' managing director Supavud Saicheua was more optimistic. He said the SET index would rise to around 880 points this year. He pointed to the Thai stock market's low price-to-equity ratio and relatively high company earnings.

He said that after the political turmoil ends, earnings growth of listed companies could be higher than the 57 per cent target.

"There is a high chance that listed companies' earnings could expand above 57 per cent, because consumers confidence will return," he said. Banks and real estate companies will be among those showing higher-than-expected profits.

He also said foreign investors would return to the capital market, because the nation would benefit from the continuing pace of growth in Asia and would consequently attract foreign investment.

But he warned that over the long term political risks would remain if reforms were slow and if the new prime minister was not considered sufficiently independent. In these circumstances anti-government sentiment could build up and plunge Thailand back into turmoil.

"Both Somkid Jatusripitak and Bhokin Bhalakula are qualified to be the next premier," he said. "Bhokin would be suitable for taking responsibility of political reforms, but Somkid is appropriate if the economy is taken into account. It does not matter who will take power as they come from the same party."

Supavud said the next government would be an interim one with a life span of 12 to 15 months, so it will not lay down any long-term economic policies.

After the political turbulence dies down, the SET index might hit 800 to 820 points, said Sirinattha Techasiriwan, head of research at Syrus Securities.

She recommended that investors adopt a selective buying strategy or buy on weakness as some stocks have already shot up significantly.

A dealer at BankThai said yesterday's climb by the baht was mainly supported by Thaksin's announcement that he will step down.

Moreover, capital inflow, especially into the stock market, is also a positive factor strengthening the baht, she said.

She said external factors also supported the baht. In particular, Asian currencies are stronger against the US dollar. This was because of China's announcement they it would reduce its dollar holdings, which weakened the greenback. Also, the market is predicting that the US Federal Reserve will slow down its interest rate hikes after the next increase, which will probably come next month.

A Kasikornbank dealer, who asked for anonymity, predicted that the baht would possibly climb to Bt38.20 to Bt38.50 against the dollar within the next couple of weeks.

Siriporn Chanjindamanee,

Somruedi Banchongduang

The Nation