Political risks expected to take toll on sentiment

Investor sentiment is expected to worsen over the next three months on concerns the global economic slowdown will erode domestic consumption and heighten internal political risks, according to this month’s Fetco-Nida Investor Sentiment Index.

Voravan Tarapoom, chairman of the Federation of Thai Capital Market Organizations (Fetco), said the confidence of investors remained weak, mainly because exports and consumption in the first half were lower than targeted.

“Investors also see the rising trend of political risks,” she said.

Investors expect the investment index in the next three months will drop sharply to 88.16 points from last month’s reading of 102.72.

The sentiment survey for June found investment confidence to be neutral among retail and foreign investors but bearish for brokers and local institutions.

The macroeconomy looks pessimistic, but the acceleration of government spending, construction of megaprojects and cuts to the policy interest rate can slightly support confidence, Mrs Voravan said.

Fetco expects the Monetary Policy Committee will maintain the interest rate at 1.5% tomorrow. It projects the economy will grow by 3% to 3.5% this year, given that consumption and exports remain weak.

Mrs Voravan said the most interesting sector for investment was petrochemicals, while banking should be avoided.

The survey also indicated concerns remained about the global economy, the US Federal Reserve’s interest rate hike and the prolonged euro-zone debt crisis.

New factors are the baht’s sharp depreciation, fund flows, the speed of government investment and a new election.

Kampon Adireksombat, chief economist and strategist at Tisco Financial Group, said the economy had been recovering but at a slow pace, in line with sluggish exports, consumption and private investment.

He predicts a recovery in the second half, driven by tourism, government spending and improved consumption.

“Foreign investors are likely to stay away from Thailand, as they remain unsure about the government’s policies in terms of the economy and politics while viewing that the Thai share market is still expensive compared with risks,” Mr Kampon said.