Thailand’s economy reported better-than-expected numbers on Monday. But markets took their lead out of the surefire bout of uncertainty after Sunday’s election handed a heavy victory to parties opposed to the ruling military-installed government.
It is a victory for the pro-democracy forces. But there will now be a period of horse-trading as opposition parties Move Forward and Pheu Thai haggle over the coalition government they agreed to form.
Move Forward’s charismatic leader, rice bran oil tycoon Pita Limjaroenrat, becomes prime minister. The Harvard-educated businessman is a young 42-year-old and will replace former army commander-in-chief Prayut Chan-ocha, who seized power in a 2014 coup and was then installed as prime minister.
Pita defeated the youngest child of former Thai leader and exiled tycoon Thaksin Shinawatra, Paetongtarn Shinawatra, who was running for prime minister at practically the earliest possible time since she was 36. Thai regulations state that anyone running for national office must be at least 35 years old.
It was also a victory for a party supporting Thailand’s recent marijuana liberalization. The pro-establishment Bhumjaithai party won 71 seats in the 500-seat House of Representatives, putting it in a respectable third place. That’s up 21 from the last election in 2019 and makes Thailand unlikely to roll back new rules that essentially legalize the cultivation and sale of cannabis, a way Thailand hopes to boost its tourism-driven economy.
Shinawatra’s Pheu Thai, or “For Thais,” party pledged to support Move Forward after taking second place. The details of how that will happen and what role Shinawatra will play have not yet been clarified.
Sunday’s House of Representatives elections include only the lower house of Thailand’s Congress. The military fills all 250 seats in the Senate. But given the landslide for the pro-democracy parties, it’s likely the military will limit the new leader’s powers rather than try to stop Pita from taking office.
Prayut said he would respect the results after his party finished fifth by a wide margin. Voter turnout was a record high at 75.2%. Move Forward has contacted five opposition parties as potential partners. If they all lend their support, the coalition would have 309 seats in the 500-seat House of Representatives.
Thai stocks shed 1.3% on Monday as the Stock Exchange of Thailand Index came in. They were Asia’s worst performers so far in 2023, with the Thai market now down 7.6% as of today’s figures. In Asia, only emerging Southeast Asia has been in the red so far this year, while developed markets Japan is up a very strong 13.2%, and even lagging Chinese stocks are up slightly year-to-date.
However, with the election now over, Thai stocks could now be quite a contrarian game. Today’s results still reflect the period of uncertainty about the outcome of the election, but the direction towards a forward-looking pro-democracy coalition is clear. The military has ruled for nearly a decade, often economically clumsy.
Thailand’s GDP grew 2.7% in the first quarter, new data from the National Economic and Social Development Council showed on Monday, as the tourism sector regains momentum and Chinese tourists in particular return. That’s practically double the pace of 1.4% in the fourth quarter of 2022.
A Reuters poll of 20 economists had forecast economic growth of 2.3% for the first quarter. The Economic Council is forecasting 28 million tourist arrivals this year, far up from the 11.2 million tourists who arrived last year. International visitors accounted for 11.5% of Thailand’s total economy in the year before the pandemic, a far higher share than is typical for Asian countries. In 2019, a record 39.8 million international travelers arrived in Thailand.
One of the central questions that the new coalition must clarify is how to deal with its relationship with the monarchy. Move Forward has made the Article 112 amendment a key part of its platform. This is the law that bans criticism of the Thai king, queen and heir to the throne. Anyone convicted of defaming or insulting the royal family faces a minimum of three years and up to 15 years in prison.
With the military typically claiming to be acting on behalf of the king, Move Forward believes the law was used to silence critics during the years of the military junta and the government it installed. Move Forward says it will press ahead with its proposal to change the law, but its coalition partners have not made the same pledge. With its 151 seats, Move Forward would have enough votes, at least on its own, to propose a change.
There may be public support for a postponement. Move Forward secured 32 out of 33 spots available in the capital, Bangkok, a surprisingly strong result. It won the support of students and young people in particular.
The political landscape in Thailand has been in turmoil since the death of revered King Bhumibol Adulyadej in 2016, who ruled for 70 years. His successor and only son, Maha Vajiralongkorn, does not enjoy nearly the same reverence or respect. The new king weathered a series of nationwide protests as well as the pandemic in Bavaria, Germany, where he has lived much of his life.
The Thai baht edged up 0.5% after the election and is now trading at 33.8 baht against the US dollar after weakening to over 38 baht against the greenback in October. The currency normally faces strong trading resistance at around 30 against the US dollar, but could firm in that direction, hurting any unhedged equity returns.
The iShares MSCI Thailand ETF THD is the purest variant of Thai equities. By tracking the MSCI Thailand IMI 25/50 Index, an attempt is made to capture exposure to large-cap, mid-cap and small-cap companies. The index sets rules to limit the impact of large caps. It stipulates that at the end of each quarter no more than 25% of the assets may be allocated to a single issuer, and the sum of the weights of companies that make up more than 5% of the fund’s share should not exceed 50% of the assets.
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