Gains limited by politics

The Nation

The mounting political risk following the People Power Party's resolution to amend several key articles of the Constitution, and the Election Commission's earlier decision to push for the dissolution of the two coalition parties through the Constitution Court, has restricted gains in the stock market.

The domestic economic recovery and a series of government stimulus-package announcements have so far failed to lift the SET Index as a whole due to the re-emergence of political risk, research conducted by BNP Paribas and Thanachart Securities said.

The SET Index has risen about 2.2 per cent since the government announced the first tax stimulus package on March 5.

The Election Commission on April 11 decided on the dissolution of two coalition parties - the Chart Thai and Matchima Thipayata - through the Constitution Court and this will be a benchmark case for the People Power Party (PPP) if the Supreme Court delivers a guilty verdict against Yongyuth Tiyapairat in the vote-buying allegation.

The two brokers said that despite the implied people's mandate from the December 23 election, a new political game was now emerging in Thailand.

The risk of one or more of the governing coalition parties - Chart Thai, Matchima Thipataya and PPP - being dissolved is mounting and the government now wants to amend Article 237 of the Constitution to pave the way for a new poll and put an end to the risk of party dissolution in the future, they said.

"The amendment would not be retroactive so it won't have an impact on the current dissolution cases, but the government still wants to do this to have more flexibility during the next election and curb the risk of party dissolutions in the future. If the article is amended, there is a good chance the government will dissolve the House and call a new election. The sooner this happens, the greater the chance the PPP would go on to win a new poll. Also, if it happens before its dissolution case is finalised, then the PPP would be able to spare its 35 executives," the brokers said.

"We still don't see another coup happening in the near term. With the election implying a people's mandate and the disappointing performance of the coup-installed government, the military is unlikely to risk staging another putsch. The situation also hasn't reached such a stage of turmoil to justify a coup, but to reduce the risks of a coup while maintaining its popularity, we believe the government will continue to aggressively pump-prime the economy, which luckily is starting to recover."

Phatra Securities managing director Supavud Saicheua said in a research paper that if Yongyuth of the PPP were found guilty, political risk would be heightened.

He estimated that the Constitution Court verdict on the PPP would take place by the end of the third quarter, if Yongyuth is ruled by the Supreme Court to be guilty.

The Article 237 amendment is not likely to go smoothly as it needs 316 votes from a joint sitting of the Parliament, and senators and the PPP's opponents have announced that they will try to block the amendment, file for impeachment of the PPP and take to the streets, Supavud said.

Political tension is on the rise and is unlikely to peak until the constitutional reform and party dissolution matters are resolved, he said.

"The possible dissolution of the PPP some time in the third quarter of this year, if this were to occur, would cause short-term political disruption. The PPP could be reborn under another name, or the Democrats could be catapulted into power. As such, a dissolution of Parliament and new elections cannot be ruled out, in our view."

Usara Wilaipich, senior economist from Standard Chartered, said in the bank's "Standard Chartered Global Focus" publication that political risk had declined since the installation of the newly elected government led by the PPP.

"Yet uncertainty is not completely removed from Thai politics. There is, for instance, the political risk associated with the electoral fraud case of Yongyuth, also a deputy leader of the PPP.

"Last, but not least, there is the PPP's proposal to amend the 2007 Constitution, but this could trigger a backlash if the government is seen as trying to amend the Constitution to protect itself and its two allies. All this could stall the progress of the recovery in domestic demand," she said.

Meanwhile, Bualuang Securities head of research Chaiyaporn Nompitakcharoen said the political situation must be monitored.

"Investors have still played down the political issue as the process takes at least two to three months, while foreign investors give weight to the US economy rather than Thailand's politics now," he said.