Thailand in the middle of a massive economic shift.
The arrival of China as major power will mark the end of Western universalism.
One of the great events of late 2009 was the fast economic recovery, lead by Asia, just a year after the Western induced financial crisis. Leading this recovery comes from China where earlier this year it was feared growth would taper off there, which would lead to the “next shoe to drop”. This so fueling a continued global economic crisis loop -but today we know it did not happen. Hence, remaining invested here in 2009 was the right action in hindsight -a foresight I look back with contentment. J
Too often investors whom sell all out, only attempting to buy back cheaper get whipsawed. This strategy has some merit if you are a trader, but often not if you are a medium to longer term value investor. We just witnessed this again as the markets turned-up with a vengeance mostly in the 3 Q., during which time the SET index nearly doubled. An investor which missed that, missed the whole year and so the recovery of earlier feared but not realized losses. If you stuck with it, as I here advocated, these were just paper losses -never realized.
Today, if you add all the dividends and free warrants received -and including some of the laggards- it comes to a uneventful year, investor wise. Considering that we just went through some of the most turbulent economic times in our lives’ history, that’s no underachievement!
Some investors stayed out all along, only too often then not getting back in, in time. Others, panicked and ate their losses, walking away with huge realized financial fatalities. Still others never got involved with stocks and so are stuck with very low interest paid on their savings, or perhaps worse un or only partially rented condo’s.
But let us move beyond the high octane volatility of '09 and consider more about China. Thailand is in the middle between China and India, 2 of the world’s top dominant new emerging economies. While there are some shorter term uncertainties here, ah.. don't we know them so well. I think these mostly already priced in the stocks through the very low p/e valuations on the SET/MAI. The longer term view remains bullish, this I remain convinced.
The biggest winner of globalization has been East Asia -and China in particular.
Today USA remains aloof on the impending loss of being the leading global economic power. Imperial powers in decline are almost invariably in denial of the facts. The Iraq war cost some 3 trillion US$ -and its not over. Besides financial wealth, it squandered a huge amount of soft power. The US is thus already beginning to face the classic problems of imperial overreach with its 1.4 trillion Dollar budget deficit.
In 2008 Moody warned that the US faced the prospect within a decade of losing its top-notch triple A credit rating, first granted to US government debt when it was assessed in 1917. This, Moody wrote, unless it took radical action to curb government expenditure. Yet, as this year comes to an end we all know that just the opposite will likely happen.
Goldman Sachs reports with a well quoted study that by 2050 China’s economy will be almost double the size of the US.* And by then, India’s economy should be as large as the US. This is very significant for among other reasons in that it would be the first time a non-democratic and still developing country would lead the economic globe. China in fact will be the great power that comes from the “wrong” side of the great divide…a creature of the colonized, rather than the colonizers, the 'losers' rather than the winners"*. The rise of the developing world was only made possible by the end of the colonialism and, maybe nobody told America, but its now happening -and Thailand is in the middle of it.
Despite regular western warnings that the Chinese models is unsustainable and so “needed to be Westernized”, the financial crisis in 2008 marked the demise of neo liberalism and the failure of the Western advocated free market model. Today it is clear that China is much better equipped to deal with the consequences of the western induced financial crisis. This represents an extraordinary change even as compared to 2-3 years ago. In fact, it’s a beneficiary of the crisis, as China will be a central player in whatever new architecture emerges from the financial crisis which will only hastened by what just happened.
Yet, the Chinese leadership has wisely chosen to constantly downplay this rise. Continuously seeking to reassure the rest of the world that China’s rise will change relatively little. The West on the other hand, having been in charge of the global driving seat for so long finds it impossible to imagine or comprehend a world in which this is no longer the case.
One could ask among other things:
---Why does the West think the only way to modernization is the Western way?
---Why does USA and Christianity in general go around the world moralizing everybody, yet they themselves violate treaties, human rights, engage in illegal wars, induce financial crisis, etc..?
---Why do so many rightfully speak about the ills of corruption around this region, but then fail to see or balance this with the horrors of hugely financed corporate lobbies in the West.
Starting with year 2010 we live in a new world of multi-polar economic powers and within a few short decades, it will be China’s turn to lead, again. The arrival of China as major power (and in time the dominant economic power) marks the end of Western universalism. And a people that suffered at the expense of European and Japanese imperialism will never see the world in the same way as those people which were its beneficiaries.
The West so accustomed for over 200 years, will surely no longer dominate world. Western hegemony is neither a product of nature nor is it eternal. On the contrary, at some point it will come to an end, yes just about by definition. Regardless what CNBC proclaims every day about New York, Shanghai within 10 years will likely become one, if not the top, world financial center. China is the elephant in the room that no one is quite willing to recognize.
The West still dominates the press and the dominant news channels and so don't count on them to report fairly or adequatly on what is transpiring.
But enough of all this or the readers here will get nauseous. The question for investors then begs the answer: invest in China. Here is where I diverge from the consensus, Chinese stocks are very volatile and rather expensive with p/e often double those of Thailand. They pay little in cash dividends and their rise will be masked full of investor traps.
Just like the gold rush in California some 100 years ago; many success stories where realized by people there selling the shovels to dig, not those excavating for gold. With Thailand being in the middle of the two new rising economic giants my take is that over the longer term (no, not next month and maybe not next year), the country will rise along and substantial returns will be made with Thai stocks benefiting from this reality.
As China is already Thailand number one trading partner and the country has the second largest number of overseas Chinese living in the Kingdom, estimated at over 7.5 million vs. only 3.4 million living in the US.
Of course there are always risks, but the bigger one is to miss out on it as its already happening. Next year China will become the second largest economy of the world, surpassing Japan. Yet its stock market is only about the 10th largest in the world, so another divergence which will start closing.
Post the present uncertainties of politics and royal succession here, my take is Thailand will rise to the occasion and over the coming years be a significant beneficiary/participant to this new reality, which is "when China rules the world". Stay posted if you can, as I plan being part of that.
Best Regards,
Paul A. Renaud.
* See page 3 of Martin Jacques book “When China Rules the World” 2009.
