Thailand’s pro-democracy parties faced built-in obstacles to forming a government even before a historic win in Sunday’s election. Now that resistance is starting to take shape, making investors wary of a protracted political uncertainty.

Pita Limjaroenrat, whose Move Forward party won the most seats in Sunday’s election, said on Thursday that the coalition has expanded to eight parties with 313 members. While that’s a clear majority among elected lawmakers in the 500-member House of Representatives, it’s short of the 376 that’s needed for the bloc to form a government without needing votes from the 250-member, military-appointed Senate, which also gets to decide the prime minister in a joint sitting.

Signs of a tough fight ahead emerged after Bhumjaithai, a party that came third in the election with 70 seats, said it won’t back Pita to become prime minister because of his quest to change Article 112, a law that mandates as many as 15 years in jail for insulting top royals, including King Maha Vajiralongkorn. The Senate, dominated by royalists, is likely to follow suit.

The potential for a conservative backlash is hitting markets, with foreign investors dumping $505 million of the nation’s bonds and stocks this week.

The baht is headed for a four-day slump, losing 2% against the dollar since Tuesday and offsetting the post-election rally on Monday. The stock index is poised for a 3% drop this week, the biggest since June 2022.

“The initial euphoria has given way to reality,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore. “It will be difficult for Move Forward to form a new government with Pita as the PM. Investors don’t like political uncertainty.”

Seeking to quell concerns, Harvard-educated Pita, 42, said the alliance is ready for the challenge.

“I’m confident we’ll have the votes to secure the premiership,” he told reporters in Bangkok on Thursday, in the first joint briefing with the seven other coalition members including Pheu Thai, a party backed by exiled former leader Thaksin Shinawatra that came in second place. “There are no scenarios that we haven’t anticipated.”

Pita’s coalition may be at risk if conservative parties, which together hold about about 180 seats in the lower house, stake a claim and secure the backing of the majority of the Senate. While Bhumjaithai has said Move Forward has the right to form a government first, the party’s leader, Anutin Charnvirakul, has often been seen as a potential prime minister candidate.

Move Forward has said it will not back down from its vow to amend the so-called lese majeste law, proposing to reduce jail terms and limit the ability to lodge cases to only the royal palace itself, not just anyone.

There are also differing views within Pita’s coalition, however. Thaksin has distanced his family from any moves that appear to go against the monarchy, even as the parties said they have agreed to work together to reach a consensus on how to proceed with Move Forward’s amendment proposal. A memorandum of understanding, which will be signed by the coalition partners on Monday, will lay out their common agenda and how they will approach Article 112.

Cholnan Srikaew, leader of Pheu Thai, said the party is committed to forming a “government of hope and dreams” with Move Forward. Pheu Thai, which dominated Thailand’s national elections for two decades, previously said it was open to discussing the proposal to amend the lese majeste law in parliament.

“Article 112 isn’t an issue that will prevent us from working together, because there are common agreements that everyone sees as a solution,” Cholnan said at the joint briefing.

Analysts said Move Forward may need to soften its stance on the royal insult law in order to reduce friction and gain support from senators or conservative parties. Pheu Thai may even join with other parties if Pita fails to form a government.

“Due to the number of seats that Pheu Thai holds, any viable coalition must include it in the political equation,” said Napon Jatusripitak, a research fellow at Singapore-based ISEAS-Yusof Ishak Institute. “The same cannot be said for the Move Forward Party, which is less flexible.”

--With assistance from Philip J. Heijmans, Karl Lester M. Yap, Hooyeon Kim, Pathom Sangwongwanich and Suttinee Yuvejwattana.

(Adds analyst comment in sixth paragraph and updates markets.)