Marcuard’s Market update by GaveKal Research
Even those who consider the return of “Thaksinomics” to Thailand a potential disaster, have to concede that it has happened in the best possible way. With the decisive victory of the populist Puea Thai party in yesterday’s parliamentary vote, Thailand will likely be spared a post-election “event.” Were the election closer (PT won an estimated 264 of 500 seats), then the opposition could have considered claiming fraud, which might have propelled the anti-Thaksin forces to pour onto the street. Instead, the outgoing PM Abhisit has accepted defeat, the defense secretary has claimed the military also accepts the election results, and there are no signs of street-marauding. Political stability is a rare currency in Thailand-the Thai Baht jumped by +0.9% this morning, the stock market opened some +3% stronger, and CDS spreads have come down.
Still, investors are left with many questions about the future, including:
* Will the incoming PM, Yingluck Shinawatra, allow her brother (Thaksin Shinawatra) back into the country, spurring the opposition to come up with new tactics to undermine the PT government (such as pursuing corruption charges against Yingluck)? After all, the opposition includes the Bangkok elite and traditional power-brokers, including those who run the legal system and the army.
* Will the PT follow through with populist policies that risk spiking inflation? For instance, during her campaign, Yingluck Shinawatra promised to fix rice prices at +50% above current prices, to boost rural incomes. Other promises include a significant jump in the minimum wage to THB300 (US$9.7) per day versus the current range of THB159 in the northern Phayao province to THB221 in the resort island of Phuket. Thailand now has a budget deficit to GDP ratio of around 3%, which is not too alarming in itself, but the trend is not encouraging and a more profligate government could make the situation worse.
* Will the PT attempt to suppress the Thai Baht? The PT’s chief economics adviser, Suchart Thadathamrongvej, has emphasized that a “competitive Baht” is important to the country, and that “heavily managed” currencies are better than flexible currencies. While currency manipulation is nothing new for Thailand, increased heavy-handedness in this arena could be dangerous-especially amid rising inflationary pressures.
* How will the election results affect private-sector investment? On the one hand, the political volatility of the past few years has been a negative for private investment, which has fallen as percentage of GDP since 2006, after successive rises in the Thaksin years. Yet with the risk of increased regulations (e.g., a big jump in the minimum wage), higher inflation and public sector crowd-out for financing (due to major infrastructure investment plans), the private sector still faces immense uncertainty.
In many ways, these worries about the Puea Thai platform remind us of similar concerns that arose when Lula came to power in Brazil. As it turned out, the Lula years were a great time to in invest in Brazil, and this is not just because of the boom in commodities. Lula’s popularity engendered a feel-good mood in the country, which, combined with “empowerment” programs for the poor, unleashed a consumer spending boom. Perhaps Thailand will enjoy the same psychological benefits of having a popular leader (and one who came to power democratically). In the long-run, of course, populist policies do often end in tears (Brazil’s current inflation situation is precarious, as is its consumer debt levels). This is one key reason why the elite in Bangkok were anxious to give Thaksin the putsch in 2006. But in the short to medium term, the Thai economy (and investors) will likely benefit from the political stability and feel-good factor that a decisive PT win has swept in.