The Market Thinks the Yellow Shirts Won

Thailand's Yellow Shirted elite is back with a vengeance. Perhaps the single most significant indicator of the extent to which it feels it has won the war as well as the battle with the Red Shirts has been the behavior of the stock market, particularly over the two weeks since it opened following the violence in central Bangkok.

The market absorbed huge waves of foreign selling in the immediate aftermath of the troubles without losing a lot of ground and has since regained those losses. The buoyancy is entirely due to individual investors who have been massive net buyers, providing most of the offset to the foreign selling. Local institutions have also been net buyers, but on a relatively small scale.

Despite a year of political uncertainty culminating in the May violence, the Stock Exchange of Thailand index has outperformed not only most of the world over the past 12 months but even in the troubled past three months. The SET index is now up 6.8 percent over three months and 12 percent over six. Meanwhile the baht has been tending to appreciate against the US dollar and in line with the general Asian currency trend, reflecting overall trade and capital flows rather than the political situation.

For a while foreign investors kept their cool and were net buyers until late April. Indeed they were net buyers of Bt38 billion for 2009 as a whole and a similar amount in the first three months of 2010 when they bought a net Bt44 billion. The foreigners rushed out in May, particularly after the market reopened, with sales of Bt59 billion. But the local individuals rushed back in. The foreigners did not become net buyers again till June 3.

For now the locals appear to have been smarter than the foreigners. However, for the longer term the Thai market needs foreign interest and confidence and this may now have been shaken more fundamentally than before. And local euphoria may owe more to Yellow Shirt sentiment than to the underlying stresses in Thailand which recent events have laid bare.

Unlike Taiwan, where almost half the population has a brokerage account, Thai individuals are mostly from the Bangkok-centered elite, including the very rich families who control many of the companies listed on the exchange. Some might be buying just because they wanted to show that Thailand was back to normal but most would be acting on the assumption that that really was the case.

In the short term that looks likely to be the case. Prime Minister Abhisit has won a confidence vote in parliament and has backed off his previous offer during the demonstrations to hold elections later this year on the grounds that conditions now were not suitable. The Red Shirts have retired from Bangkok in some disarray and some leaders, including members of parliament, are being targeted with allegations of terrorism.

Market optimists are taking heart from the fact that the Thai market was cheap compared with the rest of Asia, indeed most of the world. The economy has been thriving thanks to a revival of exports and high prices for many commodities. The collapse of tourism because of the disturbances has probably reduced gross domestic product by around 0.5 percent, but overall growth of for this year in the region of 2.7-3.0 percent may still be on the cards, offsetting the 2.9 percent fall in 2009.

Longer term however, investors may have doubts. Tourism may not bounce back as quickly this time as after previous and less serious disturbances and flu scares. Foreign investors, particularly the Japanese who have driven so much of the industrialization, may be having second thoughts about further commitments to Thailand as a regional production hub.

Meanwhile, elitists educated at expensive foreign schools have been railing against the foreign media, including such staid institutions as the Financial Times and BBC, as well as CNN, accusing them of wild distortions, sympathizing with the Red Shirts and generally giving Thailand a bad name. In reality the foreign media suffered death and injury in covering the events on the ground while local media mostly followed government orders and stopped access to websites – including Asia Sentinel – to suppress unfavorable news and comment.

The king's silence throughout the crisis is also regarded – not only by the Yellow Shirts – as evidence of support for the government. Of course, the ailing king might also have feared that this time around that the contending parties – or at least the Red Shirts – would not have listened to him. But it has confirmed the belief that the palace could no longer be considered a peacemaker. For the Yellows it has strengthened their self-view that they are defending the monarchy against former Premier Thaksin Shinawatra's alleged republicanism. However from the opposite perspective the monarchy's behavior may have turned many who have hitherto been supporters of a constitutional monarchy into actual or incipient republicans.

Although in the immediate aftermath of the final battle for Bangkok streets Abhisit talked of the need for reconciliation, subsequent events, such as the terrorism charges, suggest that the forces which control the prime minister have little interest in trying to find a Buddhist middle way but will use whatever means are necessary to hold on to power and wealth.

That in turn suggests that free and fair elections are unlikely in the near future, though some form of elections which probably would include using the judiciary to bar many opposition figures will happen at some point.