Thai political turmoil discount should now be reduced.
April 15, 2009.
Thai political cyclicality discount already well priced into stocks.
The US presentably has close to what one could call a dysfunctional banking system and other colossal problems; this along with their huge massive deficits, both private, corporate and governmental. England, Switzerland and most other developed countries are not so far behind in the sense that it will take years before these recover.
Singapore just announced a double digit GDP contractions for the 1 Q of 2009, this vs. a minus 3 expected growth rate in Thailand for year 2009. For sure Thailand deserves a political cyclicality discount which was always present -and yet its politics rarely understood by the western business press -and at that, often exaggerated.
Long term investors are used to Thailand’s political turmoil. And unlike the demonstrations that closed the airport a few days last year, the latest unrest has not hit industry.
It would not be too cynical to suggest that it is currently often in the interest of Western news and governmental agencies to without being seen in doing so, exaggerate the unsettling news here. After all, things don’t look so bad “back home” when they are portrayed as horrific in otherwise rising/emerging countries. (If others are portrayed to look even more awful then they are, you yourself don't look so bad.)
This is especially now prevalent in the current dire times, as this time around, the largest developed economy originated and induced the biggest financial crisis of our times. In time this will only mark the acceleration in the relative decline of the West. Surely not something many are proud of.
Where are the non-western journalist reporting on the many problems of the western developed economies? As seen from outsiders. Thailand has a political discount long attributed to its stock prices -but do other countries not also deserve a discount? 
Take the dysfunctional health care system in the US, as just one example. Call it the “food industry crime”, which has lead over 60% of Americans to be obese. It has been shown again and again that obesity, along with malnutrition, is the major leader to so called Western diseases. USA excel’s on both and other so called “aspiring developed” countries are following not far behind. USA spends more money on processed and junk food in convenience stores at gas stations than on gas. USA spends more on fast food than on new cars, new computers and higher education combined.*
The result is the so called metabolic syndrome or "Western diseases" which for some years have been increasing at alarming and in some cases exponential rates. Leading with diabetes -and all the other degenerative diseases- it is known these are food diet related. All as is being delivered by the gigantic and hugely profitable US food and fast food industries.
More then lack of exercise, changed diet habits over the years, nurtured by the food and fast industry has now become an increasing health disaster there. Yet all so profitable, “Big pharma” at $280 bill. a year, together with the food & fast industry are all working together in a nutritious vicious, yet highly profitable cycle *.
Why is this not being more reported on by the business press? Does this alarming national problem there, which is killing millions and perhaps bankrupting its health care, not also/equally so deserve a discount on US stock prices?
Is alarming US obesity rates, induced by poor US food habits which almost always leads to poor health, not a crisis worthy of a discount of that culture’s stock market? I ask again.
Especially so when the world’s most expensive health care system is not affordable to many, due to lack of insurance. US health care is among the most expensive and least affordable anywhere. Thailand gets some political discount, yet has overall healthy eating habits. USA in contrast perhaps should have a health deterioration discount even while its politics are better, the gigantic devilish lobbies not withstanding.
From increasingly shameful health to now lost wealth. The now defunct and never to be the same, Western financial markets.
Millions of people have lost their savings there, many their promised retirement benefits and most in the value of their homes. It has all but dwindled down to a pile of debt. Contrast this to Thailand, where trillions of cash remain in the banks, no bank subprime issues or toxic bonds of any kind are to be found -and a culture where high debt is all but absent. And where, the population is not suffering from obesity through bad eating habits leading to massive Western diseases.
My point here is that there are different, dissimilar, various and grave problems most everywhere and since they are so varied and unrelated it is often difficult to understand them in context as viewed from another culture.
Yet, that the western hired news reporters (or their own chosen stars) do not always put it in proper context/balance for their own reasons, not least being sensationalism.
We see this in the example of CNBC for example never asking Mark Faber his views on the Swiss bank scandal which in no small way contributed to the global financial crisis. Besides a recession in Switzerland. Educated viewers observe and know there can be so many biases. Is it their aim to let the masses be restricted and so blind to fair and balance views? Contrast this to Thailand and so I ask...put it all in perspective, as it does not seem to be in the interest of the press -and some others- to report a paired view.
Consider some bits and pieces which I just observed in the past few days.
---The VDO shots we just saw on global and Thai TV are the worst of a few second events, well fine tuned and amplified so to make it look this was typical and on-going. When in fact these were just isolated events. One gun goes off by accident and the reporters say it’s a ”war zone”. Lots of exaggerated nonsense fueled by the Western dominated press. (Just like right after the tsunami which hit Phuket, when CNN showed footage/pictures of devastated parts of Sri Lanka, then talked about Phuket which lead most viewers to think/conclude wrongly the pictures shown where from Phuket).
---The political turmoil is on-going and has always been part of Thailand here. In the early to mid 1990’s it was among its worst yet, the SET index kept irregularly climbing up, eventually quadrupling in value. Investors at the time which avoided Thailand due to the political mess, missed out on one of the biggest bull markets in history. To be fair the economy was growing much faster then.
It almost seems part of Thailand that there is political uprising/changes/coups/corruption; and yet many companies here survive and some even strive. But this is not reported. Governmental agencies and infrastructure keep functioning and some of the best roads the country have been built just after a Thai coup. (For sure Thailand has some corruption, but we don’t have the powerful US lobbies which influence everything with their huge chest of industry donated money. This is corruption too, albeit given a different name.)
----As you see in the companies’ LVT recent MAI presentation, were they state “we get no help from the government” and yet they operate very profitably just the same. Business has long, if not fully adapted, at least been able to duck on being greatly affected by these political changes. (A couple of years after the ‘97 Asian crisis, the Baht currency has been in a long bull market vs. the $, -and in recent years very stable vs the SFR and EU. And this so even during the global financial crisis which hit many other emerging currencies, and even Australia. So where is the “Thai basked case” scenario, so many of these same journalist imply? That is, as compared to western dreadful difficulties now.
---Every one of these crisis seemed at the time, the direst or “the worse ever of any to date” (remember SARS), yet in time things turned around again and again. Often these perceived “worst of times” were then the bottom moving on to a new reconciliation. We are likely again at just another one of such a climax now.
My view remains firm and that is to hold-on and accumulate more the deep Thai value stocks, in the right industries, least effected by these and global events, as I can find them here.
Thailand is a country which is and remains in a long term economic growth phase and with very little financial leverage on its books in thorny times when this matters most. No western made-up toxic debt horror (indeed there is a profitable banking industry here even this year) and the country has a stable currency.
Yes, Thailand does have a “political cyclical” bent to it. But this in my view has already been mostly reflected stock market prices. This is why Thai stocks are the least valued in the region. But is this overdone, compared to other countries’ problems? What happens if the latest events now lead to more stability? Will that discount not start in being pared down? I think so.
----The average Thai listed company is already trading at a huge mark down accounting for such political cyclicality. Cash dividend yields, in most instances of my choices, are at double digit levels, even while global (and Thai) interest rates have collapsed. Many of the companies I like have p/e ratio of only 2-5 and are trading below their book values, and most of all very low d/e ratios and record high dividend yields. (Many have no d’ at all, in their d/e ratio. J )
I think considering the level of interest rates in the world -and in Thailand, and taking into account the good long term dividend records of many on these companies I follow here…all points to the conclusion that the best values and highest yields can be had in this niche. The Thai political cyclicality is an amplification given which is not truly justified considering the stock valuation numbers -and when fairly contrasted to most Western governments and societies whose problems are different -but no lesser severe!
At the end of the day, the big difference remains in the relative valuations, which on the SET are at rock bottom –at half or more of Western companies, with their miniscule if any dividends, large debts and in some cases deteriorating health cultures. This calls for continued accumulation for the medium to long term investors, not bailing out. All as is seen from a global perspective and as compared to other investment alternatives.
The events of this week resulted in a major retrenchment of the political opposition, besides a loose face on credibility by its strong man long in exile. Not the least because the army came out and its clear on which side it stands. Any student of SE Asia knows that no government can stay long here without the support of the army. And the events of early this week, at its turning point, have shown. The current government is so now stronger then before -and this bodes well for the stock market here.
In fact the Thai political discount on the SET now so appears exaggerated and because of the actions of the just past 2-3 days this discount should start to be, well may I predict, reduced.
Best Regards,
Paul Renaud.
PS.
At the below link there is a short VDO clipping where this Mr. Thaksin addresses all his “fans”. Here you can see that rich man offering 500 Baht per person, so to joint the protest of late. Some people call this his “political death”. Is it much different then buying votes? Which is what his party was accused of and then convicted on. We just hear Thailand canceled his Thai passport today.
http://www.youtube.com/watch?v=5K6bGlnirgk
Footnotes:
* If you dare to check on this reality, read credible books like:
“In Defence of Food, the myth of nutrition”, by Michal Pollan (2008) you will never feel be the same about Western food, or their food companies. Not to even mention Junk food. Its an absolute disaster for years, with clear evidence that the Western food (and their food industries at the center), is slowly sickening their population to the huge benefit of Nutritionists and “big pharma”.
Or see:
* "The UltraMind Solution" by Mark Hyman, M.D. (2009)
“Fix your broken brain by healing your body first”
This book explains in detail and with much scientific evidence that US food industry and habits are poising the population.
The publisher is Simon and Schuster -and its was just published.
Consider this side note:
Mr. Marc Faber which is one such acclaimed global investor, but with a tilt. Where is their discount?
While he is a frequent featured guest by big press & TV shows, Marc Faber, is ever quick to (often rightly so) criticize the US government and its various policies. Indeed, he at any opportunity calling officials there “to look in the mirror to see the real fools”. Why does he not react on something closer to his own nationality/home country, Switzerland? From what I know he has never mentioned the horrific meltdown of the Swiss banking industry which has put nearly 100,000 people out of work in this small country, in the just past 2 years. All due to mismanagement -and so we can rightfully ask where is the discount on this?
The biggest Swiss bank had to be rescued by the Swiss government -and this more then once. (Evidently on we real people, only live once). The awfulness on all this brought on by the banks in Switzerland can hardly be exaggerated, yet is rarely mentioned by the people whom get press attention.
The very nasty -and indeed illegal- entrenched Swiss banking practice on so called retro-commissions. Whereby most Swiss banks in the past rebate part of their clients paid commissions in cash to outside money managers. Not only is this a clear conflict of interest by an entrusted fiduciary, but in fact its illegal under a Swiss 100 year old federal law. Yet this appalling practice continues, smack against the interest of their clients. It is this enthralling local practice which has pumped billions, if not trillions of $ into now defunct toxic bonds held by their clients -and in the process just about bellied-up the system. As the events turned out, we know it would have bankrupted the largest bank had their government no intervened.
Mr Faber deserves to be asked what he thinks about this. Not just forever dwelling what the US Fed is doing or not, or Citibank -or the US consumer. The Swiss banking industry has been near equally responsible for the global financial crisis -as it promoted and then sold billions of US housing bonds to their clients. So exporting this toxic poison worldwide; and this so, in proportions never seen in history before. Stocks in a bear market can come back one day, but defunct bonds nobody wants have a lowest chance.
Where is the discount attributed to the ill-aligned interest of Swiss banks of their previous huge but now dwindling client base? I just here make a comparison here that for various reasons, many countries in fact deserve not a premium, but a discount valuation –post the western induced financial tsunami.
