Barking Foreign institutional investors.
The foreigner investors are now upset as Thailand has closed a long loophole in the law which regulates majority ownership and control in companies which do business here. At least now its clear what is allowed and what is not. Before this was a nebulous concept here and so often explored by foreign investors. These often complain about "corruption" but then are more then happy to exploit the gray areas. Corruption in the West has been replaced with the powerful lobbies and the horrendous executive pay levels, often for "pay for failure" at the top.
According to the SET president this is/will only affecting some 15 listed companies and excludes the communication sector.
The foreign institutional investment community is just now "striking" and so pulling its money out. What they are forgetting (or want to forget) is that most countries have restrictions on what foreigner investors can do and what they can"t. For example in the US no foreign company can own an Airline and much more and as another example manufacturing which is however most remotely connected to making military parts, can"t be of foreign origin. The US, as many countries, have dire restrictions on what foreigners can and can"t do. Why overly point the finger at Thailand?
On the other hand, the latest Thai measures to tame the strong Baht currency are well overdone as I have stated since the first day it was announced.
The foreign Thai investors (most only institutional investors) never own much at all of the smaller cap Thai value shares anyway, so they now pulling out should be of little concern to our long term investment thesis here. But as we see yet again, they have the ability to make noise and create negative publicity, which the press then engulfs on. The foreign press loves to sack it on Thailand.
For sure this has affected sentiment and so pulled all stocks to still lower levels. Yet I think the bottom is now at or near at hand...
The point to longer term investors is that our group of shares pay near tripple in cash dividend what the local inflation rate is (3%) and are trading at near half the p/e’s of their large cap. cousins which in Thailand these are already on the lowest levels in Asia. Besides consider that these smaller firms are growing faster and often have far less debt levels. So they are dirt cheap, with still high growth potential and high income while you wait. I truly believe these can hold-up as such, from here on.
While I recognize that this is all negative publicity in the short term, it really& truly represents a buying opportunity, but will the Swiss and other investors see that? Possibly not. Still others will. Courage. After all its all about buying low and selling high.
The big theme is whether Thailand can return to democracy soon and have its general elections within a year. Will the new constitution be formulated and an election held by say early 2008? I think yes. If not and things drag on, on this front, then it will start affecting sentiment far more and so next years earnings.
While the Thai economy might slow a bit this year to say 4.4%, it is pretty much on auto-cruse control with now lower energy prices a now new net positive, among the other perceived gloom.
I am hanging in there and if I sold one of my villa’s I would invest the capital in my favorite picks which I see and feel are trading at ridiculous low valuations. Its probably an incredible opportunity to the few whom can dare to step forward as I would.
Paul Renaud.
www.thaistocks.com
January 11 "07
