Two contrasting Thai investment experiences.

PaulRen's picture

Two contrasting Thai investment experiences.

Fact is, smaller cap.  often export oriented "value’shares have by far (again and again) beaten the "big bad bear cap.s", ever since the Asian Crisis stock market meltdown begun here.


Paul, Let's trade stories -

I met a man at a conference last year, in fact chairman of a well know Thai group. He visited Thailand thirty years ago. He saw VALUE. Everything was cheap. Everybody smiles at you. He married a Thai, brought in all his capital (a few million dollars) and worked his tail off to build a business - an export oriented business.

After 30 years of honest hard work, what do you think he is worth ? Negative 20 million dollars (don't quote me, this figures changes by day) which is a lot less than 30 years ago. Like a lot of Thai groups, he is technically bankrupt.

Thailand's best story - value - low cost exporters - was fine 30, even 10 years ago when India and China were isolated. Today, with Indonesia, India, and China in full swing and Thailand's relative cost, her finished goods industry is poorly positioned - at least on a macro scale. There will be the odd company but the macro factor and lack of structural reform stack against them.

Now let's look at some high PE companies. Eg Sun Micro always had high PE. Ten years ago people said their shares were too high. Their PE is always too high any year but if you brought their story back when they were the only people tell that story you win big. So apparent high PE is not always a problem. The keys is the global position of the company.

All the world's most successful companies begin with a few years of loses because they invest profits back in the business. As the company conquer world markets and begin to break even (0), PE is price/zero = infinite. The best companies, the most innovative and market changing, go through stages with actual PE's like 950 500 etc which makes the causal observers laugh.

Same with a turn around situation (like some banks). As situation goes from -ve to +ve, PE can be also be also infinite before it settles down to +/- industry averages. A so called successful export driven company which pay high yield invites concern - why ? First, what are success factors ? (High yield not NOT a success factor at all !) do they have anything unique and defendable ?

Second, if they have such a good thing - if there is true a high demand for this good thing, why aren't these small cap REINVESTING their cash to grow ? To add share holder value the CEO has to bring more utility on assets and capital which comes with growth.

In conclusion, I believe that cheap does not imply value. High yield often though not always mean high risk. In this age of very fast innovation - you need to be tops technically to win in the long run. That does not mean that the SET will not go from 280 to 500 to 750 back to 250 etc and fluctuate for all eternity to satisfy the stock junkies and reporters and for you and me to make some money on the side.

I think the real strategic question is why Thailand ? why this small cap Thai company ? why not that small cap Chinese company in Shanghai with labor cost 1/5 of Thailand, ran by Stanford educated Hong Kong Chinese or that India software company using the latest and greatest ran by smart Indians who spend 50% of their time in Silicon valley ? Now I am sure that there are some very good answers to these questions, and I will always listen.

Best Regards,



Dear Mr. XXXXX

Thanks for your mail and good story. No doubt, you have a good point.

Now let me tell you *a far lesser known* story and one you would never read in the Wall Street Journal or see on CNBC, TV.

In mid 1997, one of my first subscribers was a man we will call "Frank".

He seemed to know allot about Thai small cap.s and hence I decided to meet him. He told me (and showed me through broker statements) that he held for long term Investments some 2 mill. US$ in small cap.s like S & J, TNL, TPCORP, CM, KWH, PR, CPF, SUN and many more. He spend many years living in and learning about, Thailand.

"Frank" owns only export oriented small cap. stock stories. He visits many of them, he attends all their annual brief he made it his full time job following these grossly & artificially so undervalued securities. We share information together and meet regularly.

Today, his account is worth more than double in Thai Baht and in US$, he is up close to 70%. This all the while the SET local benchmark plunged from 800 to 290!

The Asian crisis took it's course and all "you guys" wrote plenty about how bad things are here....and yet, the really untold story is how "Frank" made a killing in the local Thai SET! I know this occurrence for a fact, as I saw it unfold in front of my very eyes.

While sitting on huge unrealized gains...he is not selling any of these "jewels", in fact he reinvested all his big dividends into them, all along. There are a few other winning individuals we know of, but Frank by far - is the biggest "hero" to date. Needless to say, he re-subscribes every year like increasingly many others. (We here are having our best year ever at!)

Institutions would like us wealthy and or informed individuals to believe the various "weaker" reasons not to own the smaller value shares, in emerging countries. Institutions the world over, very often attack and try to discredit this (still largely unknown) working investment theme here. "Just buy our funds", may well be the pervasive gospel. These institutions strive on telling how "bad" things here are. Few if any articles ever get published on the disadvantages to mutual fund investing.

Most Mutual Funds and so called managed accounts, are prevented in buying most of these smaller "jewels in the rough’shares...(as they are far too small) and hence they go through great efforts explaining to the press (where they are the big advertisers), why our sort of investment case/theme, does not work.

---They claim abuses among inter company loans....

---They claim lowest liquidity making it difficult to buy and sell....

---They claim accounting or other potential irregularities....

All true, and many more reasons no doubt. Surely the last point is hardly confined to small Companies as in Thailand it is often "the big and connected" which practice such abuses.

But the fact is, smaller cap. export oriented value shares have by far (and again and again) beaten the "big bad bear cap.s", ever since the 1997 big cap. stock meltdown here.

The fact is, primarily the larger listed companies here are the reason of the prolonged Asian crisis. They have most of the foreign loans, are not export oriented and often in the troubled Banking sector.

You have seen this documented proof, just by looking at our "top 30" model portfolio. This model was given in '99 to CNBC, TV and was so mentioned by us on April 30. But while Singapore based CNBC says "profit from us" they never followed up on these proven good results. Why? I mean "a billion Dollars" worth of market cap. is nothing to sneeze at.

In Singapore for example, there are more then a few bashers of the small cap. value theme here. This is so because most of work there for large institutions or funds. They know the macro case on Thailand but not the micro one.

Often they joke about and bash this place "where they smile at you", while really being rather ignorant about it. They refuse to visit the real and hard working Thai companies in the heat, like I/we here do.

But, I can assure you, the "nouveau angels" investors are smart, alert and informed... many have subscribed to our case, (counting in the hundreds) and hence kept their capital intact or growing. All the while the big liquid shares from the start of the crisis to now, keep trading lower. Hence, I warn the fund managers to not make "fools out of themselves", by talking-up the wrong story.

It kind of reminds me of the unsuspecting tourist whom jumps into a taxi in Thailand, then asking the driver to take him to a certain named hotel. The Taxi driver says "over there no good ..and many problems", why not go to this other better Hotel, he boasts. "Much better", he reassures.....of course in this "other Hotel the driver gets a commission. But that does not mean it is better. "Au contraire."

Smaller Thai value shares here are among the least owned stocks in the Universe! The Thai's, it seems only want to trade and the funds, well they have at least "million dollar minimums" per stock. Hence these smaller export shares are artificially so, very depressed and this has been going on for a decade.

The dividend argument can be turned around to just the opposite, in USA. There -for decades already- the dividend pay-out is so very low. (They claim double taxes as the excuse), hence most US listed companies pay out close to nothing in annual dividends. This forces managers to reinvest all profits. Often resulting in questionable acquisitions or ever expanding, regardless if it makes sense.

Serious minded long term investors are far better off looking for value here, instead of just trading liquidity. The only qualifier is to be 1) long term oriented and 2) not having, million dollar minimums, per stock considered.

Paul A. Renaud.