Investors holding their breath as government negotiations begin

ELECTION 2007

Investors holding their breath as government negotiations begin

POST REPORTERS

Financial experts say investors will likely stay on the sidelines pending clarity about who will form the next government.

Many brokers and financiers expressed surprise at the strong showing of the People Power Party, which appears set to form the new government under Samak Sundaravej.

Montree Sornpaisarn, the CEO of Kim Eng Securities, said investment sentiment would be neutral until it is clear who will govern the country.

''If PPP can set up the government, the concern is, will it use the power to intervene in the judicial system, as there are many cases in the courts,'' he said. ''If they do dishonest things, there will only be more political problems.''

A Democrat-led government, he said, might draw a better response since the Democrats were a known factor and had headed governments before.

Patareeya Benjapolchai, the president of the Stock Exchange of Thailand, agreed the picture would remain uncertain pending the formation of the government, the announcement of economic policies and key economic ministers.

''The election result will make investors feel confident to a certain degree and they are still looking for a clearer direction by the new government,'' she said.

In any case, she said, the stock market would remain quiet as most foreign fund managers were on holiday. ''We have had a setback for over a year now. We should do something to move on.''

Maris Tarab, chairman of the Association of Investment Management Companies, said a PPP-led government would face intense scrutiny from independent organisations. Mr Samak's image among foreign investors was poor, he said, and there was concern about his pledge to bring back ousted prime minister Thaksin Shinawatra and lift the ban on 111 Thai Rak Thai executives.

''If Mr Samak was a stock, we would suggest investors to go neutral to underweight on him,'' he said.

Mr Maris said he did not see any big difference in economic policies between PPP and the Democrats. Both would use government spending, particularly on megaprojects, to boost growth.

''What I really want to see is for the new government to be serious about the country's reconciliation and outline a national agenda. Where Thailand will move to in the next three to five years is more important,'' Mr Maris said. ''If we're still divided and fight with each other like this, Vietnam will overtake us in the next few years.''

Songpol Chevapunyarote, head of capital markets at Kasikornbank, said the baht was expected to remain stable until the end of the year.

''Most of our large clients have already hedged their currency exposure until the end of the year. And volume typically drops by half at the end of the year due to the holidays,'' he said.

KBank projects the baht to end the year at 33.50/70 to the US dollar. For 2008, the baht trend was still toward appreciation, Mr Songpol said.

''Whether the baht appreciates quickly or slowly depends on the new government's policies,'' he said. ''Overall, I don't think the election will have a significant short-term impact on the currency. We're already at the lowest point in terms of politics. It shouldn't get any worse.

Other local bankers said it was premature to speculate on the policy direction of the new government.

''It will likely take a week or two before the direction and composition of the new government becomes clear,'' said Apisak Tantiworawong, the president of Krung Thai Bank and chairman of the Thai Bankers' Association.

Chatri Sophonpanich, the chairman of Bangkok Bank, said he was cautiously optimistic. ''It's still not known what the new government will look like. But I'm hopeful that all parties can join together and help address the problems facing the country,'' he said.