Make-or-break month for Thailand markets as parliament set to pick a prime minister

By Ian Sayson & Nurin Sofia

FOR Thai markets, July may w ell be a make or break month as the nation’s parliament picks a prime minister, which would signal a successful transition of power after almost a decade of military-backed rule.

Since the May election—in which pro-democracy parties racked up the most seats but weren’t able to immediately form a government—global investors have sold more than a net $2.4 billion of stocks and bonds. The uncertainty from the prolonged process hurt the baht, which fell more than 3 percent.

Lawmakers will meet to endorse the leader of an eight-party coalition led by Move Forward Party on Thursday. Should Pita Limjaroenrat fail to get enough support, analysts expect second-place Pheu Thai to

Bond . . .

continued from A14 or risk being punished. Today, the bonds of 16 emerging countries trade 10 percentage points or more over similar US Treasuries—the threshold considered distressed. Four years ago, it was only three.

“Countries are realizing you can’t go down the Lebanon route, the Venezuela route, the Zimbabwe route back in the day of continuing to do things irresponsibly,” said Charles Robertson, head of macro strategy at Frontier Investment Management Partners. “They’re doing it before they collapse, before the situation breaks.”

Money managers have been quick to reward them when they do change course. They pushed the Colombian peso to a world-beating currency rally after leftist President Gustavo Petro saw his ambitious social agenda scaled back by congress. They scooped up Argentina bonds after the nomination lead instead. Either outcome will end stasis in government, and is likely to spur a series of market-friendly reforms and a relief rally.

“The election for prime minister should mark the end to political uncertainty for the next one to two years,” said Alan Richardson, a fund manager at Samsung Asset Management in Hong Kong. “For that reason, it should be viewed as the turning point for foreign fund selling and the start of a stock market recovery.”

The 10.3 percent slide in Thailand’s SET Index this year is among the steepest globally in major equity benchmarks, and the most in Asia. The nation’s bonds have seen a selloff of about $1.1 billion since the ballot.

Front-runner Pita needs the support of more than a quarter of the unelected Senate, a body appointed by the royalist military establishment.

Resistance to his leadership is based of Sergio Massa as the Peronist party candidate signaled the October election would usher in a more marketfriendly administration.

In Egypt, which had lost its standing as an investor favorite, bonds rallied the most in emerging markets following the government’s stepped up efforts to sell state assets. And in Turkey, foreign investors piled into stocks at the fastest pace in more than two years in the wake of a decision by Erdogan’s new economic team to stop using foreign reserves to intervene in the currency market.

“Turkey’s much-awaited policy pivot is finally here—and it’s likely take a toll on growth through 2024.

The central bank started a slowburn tightening cycle in June with an initial 650-bp rate hike and partial dialing-back of macroprudential rules—all in line with our earlier calls,” said Bloomberg economist Selva Bahar Baziki.

Few places saw as dramatic a shift as Nigeria, which investors had largely on Move Forward’s platform to amend a law that penalizes criticisms against the king and other royals. The parliament can meet more than once to vote until a clear winner emerges, further delaying the installation of a new government.

“Barring an extreme outcome, Thailand’s political risks look reasonably priced in at this point,” said Hong Kong-based Minyue Liu, an investment specialist at BNP Paribas Asset Management Asia Ltd. Once a government is installed, “the market should generally expect broad-based investor friendly reforms to follow.”

Liu and Samsung Asset’s Richardson have been buying Thai equities ahead of the selection. BNP Paribas is overweight Thailand in its Asia ex-Japan portfolio, according to Liu, favoring companies that will benefit from a tourism revival and additional largely avoided in recent years amid concerns that unorthodox monetary policy was stoking inflation.

Following Tinubu’s changes, the currency immediately lost value against the dollar and global bonds rose to their highest levels of the year.

“Nigeria is the most obvious example where the new measures have really woken up the market and can make a serious fundamental difference,” said Nick Eisinger, a money manager at Vanguard Asset Services who was overweight on the debt in anticipation of Tinubu’s changes.

“The situation was so negative earlier and we then had very quick policy initiatives from the new president.”

Rally limits

ST ILL , there are questions over how long the rally can last. Some Wall Street veterans have warned that reform agendas often have a way of stalling, especially when they cause political fallout. A broader run up in developing- infrastructure investments. Once there’s a government, Richardson plans to add banks, retail, tourism, telecom and utilities, including Advanced Info Service Pcl and Gulf Energy Development Pcl.

The coalition’s unified stance on revitalizing the economy includes decentralizing the budget and dismantling monopolies, especially in the liquor industry. It aims to raise wages and review power costs. While there are signs of an economic pickup with a revival in tourism, a global slowdown is hurting Thai exports.

“We expect the focus to shift back to the economic agenda once the political situation stabilizes,” said Darunrat Piyayodilokchai, head of equities at abrdn (Thailand). “Thailand, as an export dependent economy, has also felt the impact of China’s stalling recovery,” she said. WIth assistance from Anuchit Nguyen / Bloomberg nation assets has already been held back by the slowness of China’s reopening, which is expected to ultimately drive demand for commodities, and the lack of a clear indication of when the Federal Reserve will stop tightening.

For investors like James Johnstone, however, that’s provided an opening to buy. Johnstone, who manages roughly $1 billion in emerging- and frontier-markets funds at London-based Redhweel, said policy shifts in countries like Argentina and Turkey ultimately prime them to outperform once a catalyst hits.

“We have an incredibly exciting cocktail of factors for a return of emerging markets that in some cases sadly haven’t done anything for 15 years,” he said. “The headwinds that faced this set of countries are suddenly becoming tailwinds and now you’re combining that with some political stability and a return to the mainstream.” With assistance from Zijia Song and Kathleen Hays / Bloomberg

A16 Wednesday, July 12, 2023