Thai stocks hugely outperform US markets.

October 17, 2005

Most US and EU investor perception is that investing in emerging markets (like Thailand) are "very high risk" -and so best avoided. They have been wrong lately.

The newspapers and business magazines of developed countries (and some local publications as well) do an irregular but solid job on bashing on what in fact has been working well above the global averages, investment wise, for over half a decade! And while the future is always uncertain my take is that this superior performance will likely continue.

Then, there are the many stock amateur ex-pats here whom think they know the Thai culture well -and so are self acclaimed local stock market experts. They confuse their inability to turn long-term profits on the SET with their own bad/sloppy investing habits. Just like the below average golfer whom might confuse the difficulty of a Golf course, with his own inability to drive a white ball over 100 meters. In the past, more then a few, have done a real good job in convincing others to stay out of the local market, or if not to just speculate on the local high flyers.

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Thai stock market realities. Never confuse trading with long term investing. Day trading is pure speculation -and so not investing. And if you must indulge in speculating, then never mix this endeavor with your investing account
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These types often freely voice their own firm opinion that the Thai stock exchange (SET) is nothing but a gambling den , and so best avoided. I say: it all has to do with how one invests and what ones" attitude and so investment character is.

For starters, trading for short term gains is always a speculative activity and has nothing to do with responsible long-term investing. So to loose money on the SET, just because one tried to time a few short term trades, has nothing to do with the merits or dis-merits -on investing in Thai shares. (In the long run, it has mostly to do with generating commissions for your broker).

In fact, some of the most volatile stock prices recently has come from none other then the US. Fact: US share investors have just endured the greatest wealth destruction ever. And this, at a time when a higher percent of the population invested in stocks, then ever before in history! High taxes on any capital gains, a volatile US $ currency besides a dismal US stock market; these have been the true shocking wake up-calls in the past half-decade.

Various emerging markets, notably Thailand, have behaved in the exact opposite in recent years. So going dead against the old pervasive saying that "when the US sneezes, the rest of the world catches a cold". Since year 2000, US stock have sneezed, got a bad cold besides a pneumonia; yet Thai shares on average have doubled in value as compared to say 4-5 years ago. Some astute long term investors on SET, have seen some of their value-shares move-up ten fold in market price during the same time, (call it this ten baggers ). All along, these type of selections paid twice -or three to four times annual cash dividends, as compared to so many stagnant shares in the USA or the EU. As in those developed markets dividends are almost or often nill.

Here are some interesting notes/stat"s regarding long term investing, its ups and downs, mis-perceptions and recent realities through some shocking facts:

--From year 2000 to year 2002 investors lost over 400 Billion US$ on Cisco stock alone, more then the annual economic output of Hong Kong, Israel, Kuwait and Singapore combined. Cisco was/is widely considered a true blue chip company in the high tech arena, yet turned out to be an outright investor disaster over the past several years. *

--On March 24 2000 the total value of the US stock market peaked at $14.75 Trillion. By October 9 2002, just 30 months later, the total value sank to $7.3 trillion, or a bit over 50%! Hence the understated US bear market has been far from confined to only technology stocks.

--The current stock price of Microsoft and Nokia, two leading truest blue chip technology companies, are still lower today in market price, then 7 years ago! Nokia"s stock was trading around $60 at the turn of year 2000-01 and yet today, and for 5 years already since, lingered around $12-18. Nokia is by a considerable margin the leading mobile telephone company in the world. Mobile phone usage have more then exploded in the past 5 years. Both paid a dismal, if that, annual dividend during this time. Nokia stock lost 75% of its value since the turn of this century.

--While the broader market averages in the US have lost an average of 12-17% per year, since year 2000, the Thai SET benchmark index has more then doubled during the same time. And many quality growth stocks (as I here have pointed out for years) have done considerably better then the local SET averages. Examples, Banpu, a long adored large cap energy related stock here, has increased about ten fold during this same time. Ticon, a stock selection I posted with a "maximum bullish view" a year ago, has more then doubled in value since last October "04.

And here is an interesting fact to bring up next time your expat buddy or the local marketing officer at a brokerage firm says dividends don"t matter":

---According to professor Dimson, March and Staunton of the London Business School, if you had invested $1 in US stocks in 1900 and spend all your dividends, your stock portfolio would have grown to $198 by year 2000. But if you had reinvested all your dividends, your stock portfolio would have been worth $16,797, 100 years later.

Far from "dividends don"t" matter" dividends are in fact the greatest force in stock investing! And on the SET there are some "dividend dandy’s" to be had, nearing double digit returns.
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People who invest for the long term and for the dividends, make money for themselves. People who speculate (and trading is always a speculative activity) in the end, make money for their brokers To beat the SET market averages you must keep employing strategies that are not popular by the investing public, nor their brokers. Trading is not one of them.
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The sillier the markets behavior the greater the opportunities are for gains. On the SET, before as now, there is a great adoration/fixation on large cap stocks. A silly obsession held by most. I will explain why in a future article to come. Yet, the best investor opportunities remain in the many secondary high dividend paying Thai value-shares.

Despite this superior performance, on average a Thai stock still trades at near half the valuation when compared to a US or EU average stock, all the while paying twice or more the annual dividend rate. On top of this, Thailand remains an economy which is still growing near twice as fast then lethargic and overanalyzed developed countries’stock markets.

After all, its all about creating wealth along with prudent risk -and on that basis its been a fabulous ride, right here on the SET. While there are always set backs, I think this winning investor theme will continue for some time more.

The key of course is stock selection, investor discipline & attitude, besides proper diversification and yes, never confusing that frequent trading is speculating which is not investing.

The out-of-town experts should perhaps come here to see how to benefit, rather then lecture us on how its done. They are coming from still long term declining broad markets & so investor returns, in my view.

Best Regards,
Paul A. Renaud.
www.thaistocks.com

I here simply share for free my own independent views which must not be interpreted as specific investment advice". Paul A. Renaud.

* Benjamin Graham and Jason Zweig in a great book called The Intelligent Investor, Revised Edition, 2003. Published by Collins Business Essentials.