Bangkok unrest fails to dim strong exports and other upbeat economic indicators.
Bangkok unrest fails to dim strong exports and other upbeat economic indicators.
Comparative country investor advantages and concerns/disadvantages is always about balancing the two objectively, not ignoring some while then over exaggerating others. Yet this seems so prevalent by many.
The Thai Baht currency remains firm having hardly moved vs. the US $ during the May uprising. The Thai currency is up some 20% vs. the EU and a bit more then 10% vs. the Swiss Franc, so far this year. The SET stock index is still up 5.26% over the past 3 months -and while mid/late May saw some minor correction just as Western markets also endured. Today May 28, 2010 is a holiday here so the market did not have a chance to follow up markets in the US yesterday (May 27) and today’s firmness across Asia.
I see the US's Dow Jones index just had its worst month of May since 1940 (!)...and most markets usually follow somewhat the still big guy US, due to its still global dominance. So the SET index's only 3.45% decline in May, shows some divergence don’t you think, especially considering the bad mid month uprising reported all over the globe along with big headlines.
The Bangkok Post reported yesterday that exports rose for the sixth month in a row now, rising 35.2% on a YOY basis. Its expected exports will continue to rise over the rest of the year, despite the May political uprising. All export sectors showed positive double digit growth while imports showed a 46% rise, for that comparable month.
Exports of Agri and processed food rose 27.5% and 37.1% for manufactured goods, again for the month April. For the first 4 months of this year, overall exports rose 32.5% to 58 Bill Baht. HSBC Global research states in its latest report that while May could show a short term dent, Thai exports should continue on to this impressive recovery.
“The political unrest has not affected the Thai export sector as there were no shutdowns of airports or seaports”, so stated Commerce Minister Porntiva Nakasai. She predicted exports would remain healthy and should grow 14% this year, to some 172 Billion US$. Of course there is a potential further effect by the Greek crisis, besides the Euro region as a whole along with its currency.
None of the nations major logistical infrastructure such as roads , ports and airports were effected. Tourism, which makes up 6% of GDP did take a hit, but the month of May (as well as September) is the lowest seasonal month for visitors here to Thailand.
Despite some concerns of “high political risks” and worry about the impact of the spread of discontent to the northern regions where there was no trouble earlier; and the potential problem of the royal succession, I think most of this is already priced/discounted into shares here which trade among the lowest p/e ratios in the region. This is the likely reason why the local stock market and Baht currency did not move much at all during the uprising.
In my view it is unlikely we see further major political rebellion as the government is well addressing now many of these issues with the new budget just passed last night, addressing many of the social disparities. Many of the red shirts were paid for to make trouble by some political group(s), mostly notably one which was just issued another warrant for his arrest on alleged terrorist charges. This will only divide the red shirts more. Its will be interesting to see if InterPol acts on these charges, or if there is a double standard?
The Thai government expects tax revenue to rise close to 9% this year and the economy to expand around 3.5% to 4.5% in 2010, this post the May uprising. These numbers are close to what other country analysts project, but I think it may be higher to around 4-5%, as there was strong momentum in the 1 Q. and the government will spend a huge amount on new stimulus. The first Q. GDP rise was about 12% on an annualized basis, much higher then previous estimates; but all this was buried among all the bad headline news of 1-2 weeks ago.
Here are some key factors in favor of Thailand, as cited by the Board of Investment:
1) Ease of doing business: Thailand ranks 12th in the world in this category, according the World Bank study, “Doing Business 2010”.
2) Low Taxes: Forbes magazine’s “Tax Misery Index 2009” has Thailand well down the list, while France and many other EU countries tend to be at the top.
3) Expats living here: An HSBC international survey of more than 3000 expats ranks Thailand the 3rd best place overall to live , behind only Canada and Australia. Thailand ranks number one or two in making friends, easy of finding a place to live, health care, entertainment and social life, all key factors. Health care and cost is extraordinary here vs. close to a disaster in the US.
4) Modern Industrial estates: Thailand has more than 50 industrial estates, zones and parks –big attractions for easy access to facilities. This includes transport infrastructure, transport corridors and the Suvarnabhumi Airpot, named the world’s fifth best large airport, as ranked by “Airports council International”, a ranking which may surprise many of you.
5) Liberal investment policy: Thailand has no foreign equity restrictions in the manufacturing sector, the possibility of 100% foreign ownership in many service industries no restrictions on foreign currency remittances, no export requirements and no local content requirement, just to name a few.
In all these areas Thailand business offers world class expertise, experience and knowledge. Most have strong supply chains and high switching costs that make it difficult for investor who have been here for some time, many for decades, to move elsewhere -and they are not.
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International investing is always about comparative country advantages and disadvantages -and in the proper balancing of these. Of course, don’t we know, this country still has some serious political issues to resolve, but so do others evenwhile their problems are very different.
Every country has different issues/problems/concerns and advantages & disadvantages. It surprises me how often Westerners point out the problem issues here, which then at the same time seemingly ignore their own grave troubles.
Like as just one example, we don’t have national (or local) strikes here which can cripple the entire economy, like in England and France just now, all just before their important summer high season. While Thailand’s political problems will rise and abate here from time to time, the US and EU’s trillion dollars/EU’s private and public debt problem will not vanish, maybe not for a decade or more. Some credible people think it may even implode. These are the real mega macro de-stabilizers the world bears now going forward, but less so Asia. Just the opposite is the case here with Thailand’s 150 Bill US$ in foreign reserves, over15 trillion Baht in Bank savings accounts and among the least leverage corporate balance sheets, anywhere.
I just did an internal update here on my April 20 ’10 model portfolio, as shown to members only. Since then I show a 11.5% positive return vs. -3.7%, for the SET index. While that is impressive, markets make us all humble as Demco showed the second worst performance since then. My case for Demco was never not shortest term, where nobody knows what happens, but for year 2010 as a whole. I remain convinced this company will have a remarkable earnings recovery going into the second half but its not being discounted yet. Who knows how much the market values this in time? But my view remains with a strong buy on Demco!
Note how I have refrained taking profits on STPI in my model even while it rose over 73% since. STPI earned over 5 Baht per share in the 1 Q. and even if they don’t earn another setang for the rest of the year (unlikely!), it already has a p/e of less then 5 for this year.
If this company pays 40% of net profits as dividends this would yield over 8%. on the current much higher market price of 24.50. However, I expect STPI to post more profits for the balance of this year and likely even an interim dividend. So I am sticking with it, even while holding my breath! Members should not feel bad if they took some profits as it frees up some cash of other opportunities which I am always looking for.
Yes, I remain excited on the low stock valuations here, high dividend and far under leveraged balance sheets of so many listed companies in Thailand, some of which remain on my strong buy list before, during and after the May bloody uprising. None of my choices are in the ever yo yo tourism sector -and few will see any 2010 earnings effect as the 1 Q. earnings results reported during the uprising, were well above expectation…yet totally buried during the “if it bleeds it leads” headlines. I plan another set of company visits by mid June, so keep posted.
Best regards to all members,
Paul A. Renaud.
