SINGAPORE -- Investors were generally positive about the prospect of Thai junta leader returning to power after Sunday's general elections on expectations that his government would continue to push through his economic policies, despite some long-term risks the country faces, analysts said.
Thailand has not been immune to this week's stock volatility. Investor sentiment on Monday turned negative due to a grimmer world economic outlook, which triggered a sell-off of vulnerable assets such as stocks.
Market sentiment has not fully recovered, but the Stock Exchange of Thailand's benchmark index rebounded 0.22% to 1,629.44 during early trade on Tuesday. It lost 1.24% on Monday. State-owned oil company PTT and retail giant CP All were unchanged from Monday's close.
The baht, which hit its strongest peak against the dollar on Monday, at 31.5, traded weaker at 31.6 baht on Tuesday. The baht tends to rise in risk-off situations as it is considered as a safer currency compared to the regional peers.
However, the market saw the election outcome "quite positively," said Chanpen Sirithanarattanakul, head of research at DBS Vickers Thailand. So far, the Palang Pracharat Party, with links to the military, has secured an unexpectedly high number of votes, but not enough to govern solely on its own. Junta leader Prayuth Chan-ocha will need to form a coalition government.
Sirithanarattanakul noted: "Domestic sectors such as retail and tourism, as well as ones that are related to foreign direct investment such as industrial properties would gain due to continuity of key policies." He noted that some local companies that will benefit are CP All, the retail group that operates Seven Eleven convenience stores in the country, and Amata Corp. that operates industrial complexes.
Thailand is the second largest economy in Southeast Asia after Indonesia, serving as a base for auto and electronics multinational manufacturers. Tourism is also a major contributor to the economy, as Thailand hosted some 38 million visitors last year.
Although the economy grew 4.1% last year from a year ago, a key issue for investors has been the lack of clarity in terms of the country's leadership before the elections. Now, this uncertainty has in part been removed, although the success of the government will still depend on how the coalition partners are able to work together.
The military seized power in a coup in 2014. Under Prayuth, the government devised the "Thailand 4.0" initiative that includes digitalization and the construction of the Eastern Economic Corridor infrastructure development projects. This helped local financial institutions, such as Bangkok Bank and Siam Commercial Bank, to push mobile banking. Such initiatives also attracted more foreign investments to Thailand.
Suphan Mongkolsuthree, chairman of the Federation of Thai Industries, said the return of Prayuth as prime minister would mean the continuity of major projects such as EEC that would help to bring in investments.
"The good thing is that every political party said they will definitely respect the result of the poll. There will be no more street protest that would weigh on the country's economy as it was in the past. That's why we are quite positive," said Suphan.
Under Prayuth's leadership, the new cabinet would also be able to draft economic policies quickly and help Thailand make a smooth transition to the new government.
"That would make foreign investors have less concerns. It is because at least they know that the major economic projects such as the EEC and the plan to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and [continue negotiations on] the Regional Comprehensive Economic Partnership [trade agreement] will go on," said Thanawat Phonvichai, a lecturer at the University of Thai Chamber of Commerce.
But investors could still face long-term risks as the junta will need to rely on coalition partners to retain power and help push through its policies in parliament.
Former Prime Minister Thaksin Shinawatra, who now lives in self-imposed exile but influences Thai politics, blamed Bangkok's entrenched elite and the military for the country's deep polarization. During an exclusive phone interview with the Nikkei Asian Review, he said, "The Bangkok elite want to control power without respecting democratic principles." Thaksin's remarks questioned the legitimacy of the current electoral system, and his comments suggest that the pro-Thaksin camp will remain anti-junta.
Sirithanarattanakul of DBS Vickers Thailand noted that some of the risks are "stability of the new government" and "potential conflict within the government." He noted the pro-junta party coalition would face a "very strong opposition camp which will likely comprise [pro-Thaksin] Pheu Thai Party and Future Forward Party."
"Stability in the country's political governance is fundamental to confidence-building, particularly in the arenas of global investments and tourism," said Lawrence Loh, associate professor at the National University of Singapore Business School. "Any uncertainty in the government formation, including delays in forging a post-election equilibrium amongst the major parties, will have a key impact on the economic momentum."
Nikkei staff writers Masayuki Yuda and Apornrath Phoonphongphipat in Bangkok contributed to this story.