Risks in owning stocks, amplified in Thai shares.

PaulRen's picture
As expressed in recent many months I 've become far more Thai stocks cautious, not least due to unsettled politics and lack of reforms & lack of changes for the better, as of mid year 2023.  I still am willing to view holding very selective choices which have little to do with SET movements.... and my long/very favorable view on TOG/AUCT/SICT has rewarded members here of late.  Of course there have been some laggards as well so far, like FSMART/BRR. 
Yet, as expressed since early this year, unless there are some major reforms/changes my broad view is to be Thai stock market agnostic.  Again, there are exceptions and I realize/think the market likely has bottomed in the short term: but the big much concern "du jour" now is: is there considerable/or at least reasonable broad upside potential to justify all the below expressed risks?

Some of the risks investing in Thai stocks which have of recent gotten worse as I see it, not least due to boom times being over and Thailand being stuck in the so-called middle-income trap. Here I mention my own list.  Many of these apply to all stock market investing.  But with Thai stocks these risks are increasingly enhanced -in my view.  Not lilsted in any order of preference. 

1)  Broker research used to support the positive investment decision is just plain wrong/inflated/misleading, or with an outright conflict of interest -meaning spinning things around over-positively to justify a buy opinion.  The mistaken analysis can be from a junior-analyst which just “got it wrong”, or from management comments by the company which were misleading -or exaggerated.  Or worse, a broker conflict of interest to state positive views due to a current/coming Investment Banking relationship or some other conflict denting to a biased view.  As things are here now due to inept defamation laws in Thailand one can’t point out misleading or worse behavior, due to risk of then getting sued and so regardless if its true & fully documented.  Or, information gotten from various other sources is plain wrong, like “fake news” or, exaggerated or a simple typo., or, does not take into consideration other (hidden) factors, like new competition or some other/various problems not mentioned/disclosed.  (examples: a lack of raw material, shortages, production capacity is full, key employee leaving etc..).

2)  A stock is cheap but then stays cheap, like the old Wall Street saying “a bargain is no bargain if it stays a bargain”.  This can happen as nobody else is interested, knows or cares about it. Hence the stock price slowly drifts lower, call it “slow death”.   Or and, because the market is far too speculative driven/punted and so much dire capital flows to just select counters, while ignoring investor bargains elsewhere.  An increasing reality here.

3)  Similarly, speculators and institutions have no interest because the stock has relatively low average trading liquidity and so is simply ignored only due to their own mandate of high liquidity, not investor appeal.  Just like a shark in the ocean ignores eating a smaller fish regardless how tasty. It just does not bother with it. Even though we, the real people, would.  The company is perceived as a “wall flower”, meaning its stock price is cheap and stays cheap, just like  “the pretty girl whom never gets asked to dance”.   This here can happen often due a past long reputation of being “a bore”,  likely in part due to mgt. long history of not caring about shareholder value creation -or simply because its perceived “not in fashion”.   Similar to #2.  A real risk as “it looks good on paper”, but the share price never goes anywhere. A risks often with senior mgts. which have a heavy engineering background, I dare to add.  As these often do not understand around the “cost of capital” concept and shareholder value creation. (This could be a separate topic).

4)  A company’s past high dividend policy/payout then suddenly changes to a lower payout amount, this due to a sudden acquisition, new investment, or simple change by the board of director’s disposition.   Similarly, the company announces a new rights offering (new shares offered) which then create earnings per share dilution -and so in a non-bullish market -it looses its appeal and the stock price sells off.

5)  A sudden un-expected change in the company’s fundamentals, like a major unexpected set-back…say a fire/flood (which is likely insured but then loses production capacity or investor appeal).  Or worse, an outright accounting fraud or the company getting sued.  Or, a suddenly previously higher p/e rated stock just loses its appeal. This can come from an abrupt realization that its future growth rate is not sustainable…or it was overvalued for long to begin with.
Macro risks.  A sudden broad market collapse due to unforeseen outside factors. Like a new Covit, or a war, or sudden spike in interest/inflation rates -or a big US mkt. drop.  Realize markets are often liquidity and sentiment driven!  Sudden bad politics/scandals can also play a role here, or say a “force majeure”.  Or perhaps a mob, i.e. large street protests due to unpopular/undemocratic govt. actions?  Or, a fall-out of foreign institutional investment due to perceived less appeal/corporate governance/ lack of insider trading convictions, unstable government etc..To my knowledge in over 30 years Thailand's SEC or courts never jailed any clear illegal insider-trading convicted person. Just rare and occasional fines.  

6)  There is a sudden major tourism drop-off due to many factors, not least soaring oil prices, bomb/safety/accident/airt travel scares. (Thailand being so very dependent on tourism).  Also increasingly so of late, a debt hysterical scare/panic -which suddenly is perceived to be out of control -and so broad loss of confidence.    The world all around is highly leveraged, full debt, private, company and govt.  Many believe this is unsustainable.  In Thailand we have a immense consumer debt problem.  But generally not a highly indebted listed company problem which is a silver lining.  As always, I welcome any comments.

Best Regards,

Paul A. Renaud.