Bangkok: The market is closely watching the prime ministerial vote, with the People's Party emerging as a significant factor in the potential establishment of a minority government, which may remain in office for four months before parliament is dissolved. This situation could restrict budget allocations and influence investor confidence.
According to Thai News Agency, Mr. Apichat Phubanjerdkul, CISA Senior Director of Strategy Analysis at TISCO Securities, shared insights on the "Natee Thung" program on Channel 9 MCOT. He noted that political factors have been exerting pressure on the Thai stock market in September. The market anticipates that the prime ministerial election may face challenges, with uncertainty surrounding the identity of the next prime minister. The prime ministerial vote is scheduled for later this week, with the Prachachon Party's condition to vote for the prime minister hinging on constitutional amendments and a four-month dissolution of parliament. If a prime minister is confirmed, the market might react positively in the short term, but the long-term response could remain limited due to the government's short timeframe for implementing economic policies. Investors are yet to see clarity, and if an election occurs, the leading party for government formation remains unclear.
Externally, the US stock market is expected to undergo corrections following expectations of a Federal Reserve (Fed) interest rate cut in September. This has resulted in the US stock market rising for three consecutive months, setting a new record. However, US stock valuations are tight, with stock prices reflecting expectations of interest rate cuts but not accounting for the risk of an economic slowdown from rising inflationary pressures, particularly in the fourth quarter. This could prevent the Fed from cutting rates as quickly as anticipated by the market. Additionally, September saw lower returns for most stock markets compared to other months, with US stocks delivering the lowest return of -1.1%, in contrast to other months with a gain of +0.7%.
Mr. Korapat Worachet, Senior Executive Vice President of Krungsri Securities, commented on the short-term political challenges in selecting a new prime minister. He anticipates that the budget consideration scheduled for September 1-2, 2025, might be postponed pending the prime minister's selection. If the election is completed within one to two weeks, it could result in a short-term budget delay, causing a one- to two-month delay in disbursement and disruptions to government investment projects beyond the usual timeframe.
Regarding the stock market's impact, it is estimated that the selection of a new prime minister will generate positive sentiment towards the passage of the 2026 budget, ahead of a possible election in the next 6-9 months. Given the government's short-term tenure, the market is expected to fluctuate sideways within a range of 1,220-1,270 points. The extent of the market's volatility or recovery depends on three factors: the duration of the transition period, risks to the 2026 budget draft, which could pose downside risks to the economy, and the stability of the government after the transition, indicating the medium-term political scenario.
Mr. Piriyaphon Kongwanich, a strategic investor at Bualuang Securities, assessed two main political scenarios. One involves the Bhumjaithai Party joining forces with the Prachachon Party, with a 60% probability, expecting the Pheu Thai Party to dissolve the upper house, leading to an election by December this year. The other scenario, with a 40% chance, involves the Pheu Thai Party joining forces with the Prachachon Party, with the government expected to be in office for about four months before the House is dissolved at the year's end and an election held by February.
The current political situation is likely to lead to a minority government formation, with a limited administrative timeframe of no more than four months. Although the 2026 Budget Act has a good chance of Senate approval through proper procedures, the transitional government's authority and timeframe's limitations may restrict the use of new budgets. Additionally, if Parliament dissolves and new elections are held, the budget disbursement process is likely to be delayed.
In terms of stock market impact, if a government is formed quickly, the market may anticipate economic stimulus measures from the new administration, potentially drawing comparisons to past election periods. Historically, the Thai stock market typically rises in the three months leading up to election day, known as the pre-election rally, with an average return of approximately 3%. However, for this election, the market's chances of entering the pre-election rally seem limited due to multiple uncertainties, including ongoing legal proceedings involving several major political parties and the risk of an economic slowdown, with the country under minority government administration for the next four months. This could impact overall investor confidence. The SET target for the year-end period remains at 1,280 points.