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Investors are hoping for greater political and economic stability in Thailand after the country's upcoming general election — but some analysts aren't so sure that will come to pass.
Last year, the Thai stock market suffered a record $9 billion in foreign investment outflows as investors withdrew from emerging markets amid rising interest rates in the U.S. and global economic concerns. This year, foreign buying of Thai equities has not return in a significant way, with many investors opting to wait for clarity on the political front.
The election on March 24 will be Thailand's first since a military coup overthrew the elected government in 2014. The vote is set to be a contest between three political fractions:
None of the parties are expected to single-handedly win enough seats to form the next government, which means the most likely scenario is a coalition administration. That may be challenging, however, in a polarized political environment like Thailand, analysts said.
Thailand is the second-largest economy in Southeast Asia, and political uncertainty there has been a main challenge to growth. The country's gross domestic product growth fell to under 1 percent after the coup in 2014 before inching up past 4 percent in subsequent years, according to data by the International Monetary Fund.
Investors are hoping the upcoming democratic process can secure continued growth.
"We expect stable politics after elections," Suchart Techaposai, head of Thai research at financial services firm CLSA, told CNBC's Sri Jegarajah on Thursday.
"The most favorable outcome will be a coalition government backed by this current military group. That will allow policy continuity and potentially private investment upside cycle that has been lost in the past decade due to this political confrontation," he said, adding that such a scenario would help the Thai stock market benchmark, the to climb to 1,850 by the end of 2019.
The index ended Wednesday at 1,639.67, representing a gain of around 4.8 percent so far this year.
Techaposai is not the only one with an upbeat view of Thai stocks. Strategists at Singaporean bank DBS wrote in a Thursday note that they expect "a smooth transition of power to a new government," which would boost domestic consumption and investment, and attract some foreign funds into the country again.
But other analysts are not so optimistic.
Miha Hribernik, head of Asia at risk consultancy Verisk Maplecroft, wrote in a March report that the upcoming Thai election "threatens to deepen the rift that brought the country to the brink of civil strife in 2014."
He explained that a victory by the pro-army Palang Pracharath Party would "inflame the opposition," while a new government led by anti-military Pheu Thai Party would "have its authority significantly constrained by military-staffed unelected bodies."
"Either way, long-held grievances by the opposition will continue to fester. An increase in civil unrest is, therefore, plausible in the wake of the election," said Hribernik, adding that such a scenario means the new Thai government — regardless of its political affiliation — will be forced to prioritize domestic stability over other issues, including economic reforms.
Economists at consultancy Capital Economics also said they don't rule out political protests that could derail the Thai economy.
"Tensions could flare up again if the electorate feels that it is being denied free elections. Another outbreak of protests and violent conflict, similar to those observed in 2010 and 2014, would deal a significant blow to the economy," the economists wrote in a note last week.
The last outbreak of violence in 2013 to 2014 was estimated to shave 0.7 percentage points off of GDP growth in Thailand, according to Capital Economics.
Acknowledging the challenges that Thailand faces in growing its economy and narrowing the income gap, politicians in the country have made economic policies the center of their campaign this time.
The Southeast Asian nation with a population of around 70 million was one of the world's most unequal economies, according to a report last year from Swiss bank Credit Suisse. The report, which studied wealth around the world, found that Thailand's Gini index was at 90.2 percent. The Gini index, which ranges from 0 to 100 percent, measures the distribution of wealth and a larger number means inequality is more severe.
"Policies, first of all, have to reduce the burden of the people — I think that's our priority. It's clear that government economic policies in the past four to five years have not provided solutions to those suffering the most, and you're talking about almost half the country," Korn Chatikavanij, a former finance minister with the Democrat Party, told CNBC's Sri Jegarajah.
His sentiment is shared by the Bhumjaithai Party, a political group claiming to be neither supportive nor against the military junta.
"Our campaign is to better the well-being of all Thai people," said Anutin Charnvirakul, party leader and prime minister candidate for Bhumjaithai. He told CNBC that he would push for deregulation and better protection for farmers if his party forms part of the new government.
The Palang Pracharat Party, led by current cabinet members in the military regime, also acknowledged that economic growth and reducing inequality should be the main priorities of the new government.
Santi Kiranand, an executive of Palang Pracharat, told CNBC's Sri Jegarajah that the current administration under Prayuth has introduced policies to encourage innovation and infrastructure development across Thailand. That's the agenda that his party will continue to pursue if it wins the coming vote, Kiranand said.
"Although, right now, we are in a good shape in terms of economic growth, no one can be certain that we will be in that good shape sustainably," he added. "This is a question of sustainability and ... inequality. So these two issues, sustainability of economic growth and inequality, are our priority that we have to tackle."