Thailand is often disregarded and overlooked due to its historically unstable political climate and because it is in the shadow of other economically successful and politically stable neighbouring countries. Yet, Thailand is the second largest economy in South East Asia with a solid growth performance (the most recent data show a 3.7 real GDP growth compared to only 1.3 in both Singapore and Hong Kong). With wages remaining low, together with Vietnam, Thailand stands to benefit from increasing wage pressure in China and is predicted to be one of the main beneficiaries if an escalation of the US-China trade war leads to the relocation of supply chains.
Before proceeding with the economic and stock market outlook, it is important to briefly underline the Thai political situation and to understand the recent elections. The political system of Thailand has been highly unstable for decades. Since the Siamese revolution of 1932, when a small group of military officers overthrew the King, ending seven centuries of absolute monarchy and establishing a constitutional monarchy, the military has staged a coup about a dozen times.
Political support since 2001 has been divided between mostly rural supporters of former PM, Thaksin Shinawatra who was ousted by a coup, (dubbed the red shirts) and the opposing mostly middle class people (dubbed the yellow shirts). Across multiple Prime Ministers, scandals, corruption claims and failures to reunite the country the people remain divided and the military set in place a new government with yet another coup in 2014. It has remained in control since then.
On March 24 of this year, Thailand has seen its first democratic elections since 2011 and its current outcome is projected to be a win for the PPRP military supporting parity, keeping in place the military appointed PM, but this time through a popular election. The official complete results will only be announced on May 9th but so far 95% of results were released and Mr. Prayut, will keep remain PM, but he faces a coalition of seven parties opposed to the generals who has claimed to have a majority. The opposition has furthermore claimed that the elections were rigged, corrupted and undemocratic. The opposing parties and “Red shirts” dispute the outcome and have issued petitions to nullify the elections, which received great popular support.
So what can be said about the current impact this has had on the Thai economy and stock market and what does this mean for the future of Thailand currently 1 month after the election took place? Directly after the elections, there was a slight negative reaction in the stock prices of Thailand’s index (SET index) but it quickly recovered. Other indicators, such as the business confidence and consumer confidence measurements, have not had a significant or correlated change due to the preliminary election results. This may be explained by the claim that “Thailand is considered to be one of those countries where the politics don’t have much impact on its economic state.”, as claimed by Mizuho Bank LTd.
In terms of economic and stock market history, Thailand is one of the countries which suffered from major and historically significant downturn as 19 Billion$ in foreign investment were withdrawn from Asian emerging markets in late 2018. This was mostly due to global fears of recession, the FED rising interest rates and global decrease in trade. Since January of 2018 global stock markets have largely recovered including the SET index. However, a significant portion of market operators and economists stay optimistic as they are confident that foreign investors will return and FDI has started to slightly pickup, as its macro-economic situation suggests. Its inflation rate is low (1.1%) and within its target, unemployment is very low (0.9%) and so is the government debt (the debt-to-nominal GDP ratio is 34%). In addition, in order to manage its managed-float exchange rate system, Thailand holds impressively high foreign exchange reserves at 200 Billion USD. Finally, being a highly exporting country, its current account is in surplus. Many are convinced that this is a proof that the economy will recover and that now, with Prayut still in charge, the country should be able to encourage the return of foreign investors, as hopefully the level of uncertainty may ease. Yet, if uncertainties around the election remain, it is unclear what the overall effect will be. Other countries have not yet acknowledged the discrepancies in the election with the EU and other nations being generally supportive towards a somewhat more democratic direction of Thailand.
Previously the EU had refused to hold free trade talks with Thailand after the 2014 coup. Yet on a lighter note talks are likely to resume after the election: “We stand ready to work with the new government in order to build a deeper relationship with Thailand” said the European External Action Service. This is a clear positive upswing for the country and its economy is likely to reap benefits from this as it may increase its exports to the EU. Appearing as a more democratic nation is also likely to add to the tourism industry. The tourism council of Thailand expects 40.3 million tourists (7.5% increase) in 2019 thanks in part to the hopes of political stability and due to the lowering of visa barriers. Furthermore, Thailand is also expected to be the biggest market for IPO’s in Southeast Asia this year with listings set to raise $5 Billion. Among all this optimism there still remains a degree of uncertainty over the elections and the irregularities. What is remarkable is that Thailand seems to defy the rule that political stability is a precondition for long run growth. Thailand has had one of the most unstable political systems for decades and been economically successful for decades now.
Riccardo Di Mauro
Before proceeding with the economic and stock market outlook, it is important to briefly underline the Thai political situation and to understand the recent elections. The political system of Thailand has been highly unstable for decades. Since the Siamese revolution of 1932, when a small group of military officers overthrew the King, ending seven centuries of absolute monarchy and establishing a constitutional monarchy, the military has staged a coup about a dozen times.
Political support since 2001 has been divided between mostly rural supporters of former PM, Thaksin Shinawatra who was ousted by a coup, (dubbed the red shirts) and the opposing mostly middle class people (dubbed the yellow shirts). Across multiple Prime Ministers, scandals, corruption claims and failures to reunite the country the people remain divided and the military set in place a new government with yet another coup in 2014. It has remained in control since then.
On March 24 of this year, Thailand has seen its first democratic elections since 2011 and its current outcome is projected to be a win for the PPRP military supporting parity, keeping in place the military appointed PM, but this time through a popular election. The official complete results will only be announced on May 9th but so far 95% of results were released and Mr. Prayut, will keep remain PM, but he faces a coalition of seven parties opposed to the generals who has claimed to have a majority. The opposition has furthermore claimed that the elections were rigged, corrupted and undemocratic. The opposing parties and “Red shirts” dispute the outcome and have issued petitions to nullify the elections, which received great popular support.
So what can be said about the current impact this has had on the Thai economy and stock market and what does this mean for the future of Thailand currently 1 month after the election took place? Directly after the elections, there was a slight negative reaction in the stock prices of Thailand’s index (SET index) but it quickly recovered. Other indicators, such as the business confidence and consumer confidence measurements, have not had a significant or correlated change due to the preliminary election results. This may be explained by the claim that “Thailand is considered to be one of those countries where the politics don’t have much impact on its economic state.”, as claimed by Mizuho Bank LTd.
In terms of economic and stock market history, Thailand is one of the countries which suffered from major and historically significant downturn as 19 Billion$ in foreign investment were withdrawn from Asian emerging markets in late 2018. This was mostly due to global fears of recession, the FED rising interest rates and global decrease in trade. Since January of 2018 global stock markets have largely recovered including the SET index. However, a significant portion of market operators and economists stay optimistic as they are confident that foreign investors will return and FDI has started to slightly pickup, as its macro-economic situation suggests. Its inflation rate is low (1.1%) and within its target, unemployment is very low (0.9%) and so is the government debt (the debt-to-nominal GDP ratio is 34%). In addition, in order to manage its managed-float exchange rate system, Thailand holds impressively high foreign exchange reserves at 200 Billion USD. Finally, being a highly exporting country, its current account is in surplus. Many are convinced that this is a proof that the economy will recover and that now, with Prayut still in charge, the country should be able to encourage the return of foreign investors, as hopefully the level of uncertainty may ease. Yet, if uncertainties around the election remain, it is unclear what the overall effect will be. Other countries have not yet acknowledged the discrepancies in the election with the EU and other nations being generally supportive towards a somewhat more democratic direction of Thailand.
Previously the EU had refused to hold free trade talks with Thailand after the 2014 coup. Yet on a lighter note talks are likely to resume after the election: “We stand ready to work with the new government in order to build a deeper relationship with Thailand” said the European External Action Service. This is a clear positive upswing for the country and its economy is likely to reap benefits from this as it may increase its exports to the EU. Appearing as a more democratic nation is also likely to add to the tourism industry. The tourism council of Thailand expects 40.3 million tourists (7.5% increase) in 2019 thanks in part to the hopes of political stability and due to the lowering of visa barriers. Furthermore, Thailand is also expected to be the biggest market for IPO’s in Southeast Asia this year with listings set to raise $5 Billion. Among all this optimism there still remains a degree of uncertainty over the elections and the irregularities. What is remarkable is that Thailand seems to defy the rule that political stability is a precondition for long run growth. Thailand has had one of the most unstable political systems for decades and been economically successful for decades now.
Riccardo Di Mauro