Foreign investors welcomed the promise of a calming in political tensions in Thailand after premier Thaksin Shinawatra announced he would step down. The country’s stock market benefited from the news, posting its biggest gain in two years, and the Baht also climbed.
“Clearly its positive for the market place, it removes a lot of uncertainty that had weighed on market sentiment,” said Lance Depew of Quest Management’s $260 million Thai Focused Equity Fund.
Business billionaire Thaksin plans to remain as in politics, possible retaining the leadership of his Thai Rak Thai party while relinquishing his position of prime minister to an ally. His hand was forced by mounting protests, particularly around Bangkok, after a snap election this week was boycotted by the opposition.
Money managers emphasized that the short term boost offered by the decision won’t alter their assessments of Thailand’s economy.
“When you look at the economy and the stock market it’s not like you have a communist contingent in the opposition,” Depew said. “Regardless of who’s in power the overall macro-economic picture doesn’t change that much. We’re still positive about the Thai economy.”
Thaksin has established a reputation as a man of action, willing to challenge the traditional lethargy of Thai politics and not afraid to make enemies. He has presided over a period of raid economic growth which saw foreign investment more than double to $2.7 billion in the three years up to 2005.
“We’ve just lost a pretty powerful leader who was seen to get things done and push them through,” said Mike Hanbury-Williams, a fund manager at F&C. Outstanding accusations concerning Thaksin’s business dealings while in power “will probably raise issues about controls,” he added.
Opposition to the prime minister gained ground after his family netted a tax-free $1.9 billion from the sale of their telecommunications business to Singapore’s state investment company earlier this year.
Hanbury-Williams says he views Thaksin’s decision as “on the positive side” but still has concerns about domestic instability in Thailand. Ronnie Petrie of Standard Life agrees: “It’s short term positive as it puts off the worst case senario.” Ultimately, however, Petrie argues, “it’s all a bit of a sideshow, I don’t think it matters all that much.”
Rising interest rates are a more important factor holding back economic growth in Thailand than political instability, according to Sailesh Jha, an economist at Credit Suisse.
“The current euphoria in financial markets may be short-lived,” Jha warns in an research note.