(Bloomberg) -- Thailand’s domestic investors are snapping up the nation’s beaten down equities, betting that the months long political standoff will be resolved soon.

The benchmark stock index has rallied more than 4% from a June 28 trough, and may extend if a government takes office soon, according to analysts. While the SET gauge is still Asia’s worst-performing equity market this year, the recent performance outpaced a 1.6% gain in the broader regional gauge.

The gains indicate that investors in Thailand expect a government can be formed after months of wrangling between pro-democracy parties and a military-backed Senate. Global funds have sold $3.7 billion of the nation’s equities this year, even as economists project a third year of economic growth and rebounding tourist arrivals.

“Locals have some understanding of local politics with their experience of much worse crises in the past, so this also gives them a buying opportunity,” said Natapon Khamthakrue, an analyst at Yuanta Securities (Thailand) Pcl in Bangkok. “Foreign investors will stay away from Thai equities until there is clarity about a new government.” 

Attempts by Pita Limjaroenrat, head of the Move Forward Party which won the most seats in the May election, to form government have been stymied after he campaigned on a platform that included changes to a law on insulting the monarchy. Pheu Thai, a party linked to popular former leader Thaksin Shinawatra, has now stepped up to form a coalition.

To be sure, the process of endorsing Pheu Thai’s bid, which proposes a property tycoon as prime minister, is delayed pending a Constitutional Court review scheduled for Aug. 16 of the parliament’s move to bar Pita’s re-nomination.

In the more than two months since the general election, local individuals and funds have increased net equity purchases by 57 billion baht ($1.64 billion), taking their buying this year to 129 billion baht, according to data compiled by Bloomberg. Foreign funds pulled a net $1.67 billion from local stocks in the period. 

A Pheu Thai-led alliance, even without the progressive Move Forward, will be viewed positively by investors due to its proposed policies such as cash handouts and an increase in the minimum wage, Citigroup analysts including Kaseedit Choonnawat and Ferry Wong wrote in a July 27 report. The party has yet to announce its coalition partners.

Even with the delays, Thailand is the only major Southeast Asian economy on course to post higher economic growth this year than in 2022. The country’s prospects will be bolstered by an increasingly broad-based tourism rebound as well as robust private consumption, according to Fitch Ratings. Better export performance and tourist arrivals saw the first current account surplus in three months in June.

Along with an influx of international visitors, overseas investments will also help drive the economy, according to Chartsiri Sophonpanich, the president of Bangkok Bank Pcl, the nation’s biggest commercial lender by assets. Investors from abroad, including Chinese manufacturers, have increased spending in Thailand and other Southeast Asian nations to diversify supply chains, he said.

“Thailand should also benefit from a more stable political and economic outlook with a new coalition government expected to be formed that supports market-friendly policies,” said Ratasak Piriyanont, an analyst at Kasikorn Securities Pcl. “Therefore, we remain bullish on the Thai equity market in the second half.”

--With assistance from Ian Sayson.

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