Thailand’s stock market: An overlooked opportunity after political turmoil
THE SET50 Index Futures contract, which represents the performance of the top 50 stocks listed on the Bangkok SET Index, has been one of the worst performing stock indices in South-east Asia this year amid political uncertainty that has plagued Thailand since its May general election. At the close of the morning session on Aug 3, the contract was down by 5.66 per cent year to date.
We hold a bullish outlook on the SET50 Index Futures contract, but we anticipate high volatility in the near term due to political uncertainty. Nevertheless, we see substantial upside potential once the post-election turmoil in Thailand subsides, presenting the current weakness as a buying (long) opportunity.
More than two months after the general election, Thailand has yet to have a new government after conservative parties and military-appointed senators blocked Move Forward Party’s leader Pita Limjaroenrat from leading the next administration. Much of the opposition is due to Pita’s reformist agendas including amending the country’s Lese Majeste law which punishes anyone who criticises the monarchy. This prolonged delay in government formation has weighed on Thai equities, with foreign investors pulling out over US$3.5 billion this year, according to Bloomberg.
Latest developments indicate that the second-placed Pheu Thai Party will form a new political coalition with the possible backing of some conservatives, while excluding the Move Forward Party which actually won the highest number of seats in the May election. It will also nominate property tycoon Srettha Thavisin for the Prime Minister position. Market sentiment will likely remain cautious until a new government is fully formed.
Fundamentally, despite the current political turmoil, Thai consumer confidence rose in June for the 13th straight month driven by strong domestic demand. We expect tourism recovery and economic momentum to accelerate further and drive an equity rebound.
Prior to the Covid-19 pandemic, tourism accounted for about 12 per cent of Thailand’s gross domestic product. We do not expect China’s recovery woes to derail Thailand’s tourism rebound. Upcoming public holidays such as the “Golden Week” in celebration of China’s National Day should see travel-starved Chinese citizens flock to inexpensive nearby South-east Asian countries such as Thailand.
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According to its Tourism and Sports Ministry, foreign travellers entering Thailand from Jan 1 to Jun 25 reached 12.5 million, up by 539 per cent year on year. Chinese tourist arrivals exceeded 1.4 million, up by 2,459 per cent year on year. The Thai government expects around seven million Chinese tourist arrivals in 2023.
Key campaign promises made during the election are expected to boost domestic demand. These promises include raising the minimum wage, reducing household costs, and the possibility of cash handouts.
From a technical perspective, we expect the contract to remain volatile and face downward pressure in the near term. Once political stability returns, we expect the contract to head upwards towards the 61.8 per cent retracement level at around 980 to 982 which, if broken, may see the contract sustain its bullish momentum and head towards the 76.4 per cent retracement level at around 1,000 to 1,003 by year-end.
We also maintain a bullish technical outlook as:
1. The Relative Strength Index (RSI) remains in bullish territory at around 58.76. We hold the view that the contract has further upside before hitting the overbought level of 70. As long as the RSI remains above 50, we consider the bullish momentum to be intact.
2. The Moving Average Convergence Divergence (MACD) indicator also validates our view, showing a bullish crossover signal as the MACD line is currently above the signal line. The MACD histogram is also in positive territory, signalling bullish momentum.
3. The contract is trading above the 50-day and 100-day moving averages, which typically signal bullish momentum.
In conclusion, we hold a bullish outlook on the SET50 Index Futures contract due to structural fundamental tailwinds. We expect the contract to remain volatile in the near term but once the political gridlock is resolved, we expect a rally towards resistance at the 61.8 per cent retracement level around 980 to 982. If this level is broken, the contract may sustain its bullish momentum and head towards the 76.4 per cent retracement level around 1,000 to 1,003 by year-end. We view any near-term pullback as an entry opportunity.
The writer is investment analyst at Phillip Nova
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