Bloomberg News

Thai Baht Rises as Pro-Thaksin Opposition Claims Election Win

July 03, 2011

July 4 (Bloomberg) -- The Thai baht rose after allies of exiled former premier Thaksin Shinawatra won a majority in yesterday’s election. Thailand’s stocks may climb, according to UOB Asset Management (Thailand) Co. and BBL Asset Management Co.

Pheu Thai, led by Thaksin’s sister Yingluck Shinawatra, was expected to win 264 seats in the 500-member parliament with more than 98 percent of the vote counted, defeating the Democrat party of Prime Minister Abhisit Vejjajiva with 160 seats, according to Election Commission data. After Abhisit congratulated Yingluck on “becoming the next prime minister,” the defense minister said the army accepted the result.

Investors have sold Thai stocks and the baht over the past month on concern a disputed result would spark violence. The decisive win by Thaksin’s allies may bring stability to a nation beset by clashes between his supporters and opponents that claimed more than 100 lives since the last vote in 2007.

“The stability of the new government is very important for both local and foreign investors,” said Voravan Taraphum, chief executive officer of BBL Asset, a unit of Thailand’s biggest lender, which oversees about $4.9 billion of assets. “The return of overseas investment into Thai stocks will help the baht appreciate.”

Thailand’s baht rose 0.4 percent to 30.68 per dollar as of 7:41 a.m. in Sydney.

Global funds sold $884 million more Thai equities than they bought in June, the second month of net sales and the biggest monthly sell-off since January, according to stock exchange data. The benchmark SET Index fell to a three-month low on June 27.

Pre-Election Slide

“Pheu Thai’s majority victory is positive for the economy,” Vana Bulbon, chief executive officer of UOB Asset Management (Thailand) Co., which oversees the equivalent of $1.8 billion of assets, said by phone yesterday. “It will let them control key economic ministries, allowing better coordination and implementation of policies. Politics has been the key risk discouraging overseas investors from putting more money into Thailand.”

The SET may gain as much as 3 percent today, said Jitra Amornthum, head of research at Finansia Syrus Securities Pcl.

The stock measure traded at 11.7 times estimated 2011 earnings, compared with 13.6 times for the MSCI Asia Pacific Index, according to data compiled by Bloomberg. The Thai index dropped 3 percent in June, the third-worst performance in Asia, while the baht fell 1.4 percent against the dollar during the period, the worst performance. The baht reached a five-month low of 31.01 on June 28, according to Bloomberg data.

Assessing Risk

A military crackdown on protests by Thaksin’s supporters last May sparked arson attacks and violent clashes, claiming about 90 lives. The supporters occupied Bangkok’s commercial district, forcing a closure of some shopping malls and offices. In 2008, a seizure of Bangkok’s airports during a protest by Thaksin’s opponents disrupted trade and stranded thousands of tourists.

Some overseas investors may be more cautious about buying Thai assets because of concern that Pheu Thai’s election victory may not bring an end to political instability, said Takahide Irimura, head of emerging-market research at Tokyo-based Kokusai Asset Management Co., which oversees about $57 billion of assets including Asia’s biggest debt fund.

“Investors are worried if there will be any repetition of protests, violence or other kinds of political problems that may hinder the nation’s economy or financial markets,” Irimura said. “So, they want to reduce their positions on Thailand and see a direction of where it’s going or a degree of such risks.”

Thaksin was ousted in a 2006 coup and has lived overseas since fleeing a jail sentence for abuse of power in 2008. Abhisit told his supporters that Pheu Thai plans an amnesty for Thaksin, allowing him to return to the Southeast Asian country and reclaim more than $1 billion in seized wealth.

Court Rulings, Coup

“I hope that we will accept the decision by the majority of Thais in this election,” Thaksin told Thai PBS television station late yesterday by phone from Dubai. “If you don’t respect the decision of most people, the country can’t have peace.”

The Election Commission will certify winning candidates within 30 days, after which Parliament will meet to pick a prime minister, according to spokesman Paiboon Lekprom.

Thaksin-backed parties have won as much as 49 percent of seats in four previous elections dating back to 2001, only to see the last three results overturned through court rulings and a coup.

Pheu Thai pledged to provide guaranteed prices for farmers, increase minimum wages, maintain policies to encourage foreign direct investment and take measures to curb accelerating inflation. Consumer prices held near a 32-month high in June, gaining 4.06 percent from a year earlier, government data show.

Higher Interest Rates

The Bank of Thailand has raised the benchmark one-day bond repurchase rate four times this year to 3 percent to contain price gains and signaled further increases are likely as rising food and energy costs add to inflation pressure. The finance ministry said last week it expects gross domestic product to expand by a maximum 5 percent this year.

Even after the worst political violence in almost two decades, both Thailand’s key stock index and the currency were the second-best performers in the region last year, with a 41 percent gain and 11 percent appreciation, respectively, as the economy grew at the fastest pace since 1995.

The SET Index fell 0.6 percent in the second quarter, the gauge’s first quarterly loss since March 2009, while the baht posted its second quarterly decline, losing 1.6 percent. The SET Transportation & Logistics Index dropped 12 percent last quarter, the most among industry groups traded on the Thai bourse.

“I don’t expect overseas investors will react negatively in the short term because they already factored this in by selling Thai equities in the past month,” said Jitra, from Finansia Syrus in Bangkok. “The election delivers a clear picture that Pheu Thai will head the new government with a strong mandate.”

--With assistance from Candice Zachariahs, Garfield Reynolds and John McCluskey in Sydney. Editors: Tony Jordan, Darren Boey

To contact the reporters on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net; Yumi Teso in Bangkok at yteso1@bloomberg.net

To contact the editors responsible for this story: Darren Boey at dboey@bloomberg.net; Sandy Hendry at shendry@bloomberg.net


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