You've seen the unrest, now don't invest
The recent social and political discord in Thailand has made the country an unattractive proposition for those wishing to make a profit, writes Annie Shaw
Saturday 18 April 2009
Anyone who has visited Thailand on holiday will be deeply shocked by the scenes of violence that have played out in the streets of Bangkok in recent days a sharp contrast to the image of palm trees and sunny beaches that the "Land of Smiles" usually evokes.
The social and political unrest that erupted on to the streets of the Thai capital last weekend, forcing the government to declare a state of emergency, has, however, left UK investors largely unmoved although elsewhere around the globe the reaction has been rather more negative.
A three-week siege of the prime minister's office, which culminated in rioting and the cancellation of a summit meeting of the Association of South-east Asian Nations (ASEAN), were a humiliation for a country which as recently as the 1990s was one of the South-east Asian Tigers. Now, like so many other nations around the world, it is struggling to stimulate its economy into some semblance of recovery in the face of contracting output and trade and a civil revolt.
The return of a right-wing government last December has so far done nothing to revive the country's ailing fortunes and it is supporters of the former leftist prime minister Thaksin Shinawatra who have provoked the current crisis by bringing their grievances on to the streets.
The battle lines have been drawn up between the "yellow shirts", who back the current prime minister, Abhisit Vejjajiva, and mainly comprise royalists, the military and the city-dwelling middle classes, and the "red shirts", who are mostly the rural poor. The latter support the self-exiled Thaksin, who was removed from power in a 2006 military coup.
Despite his absence from the country, Thaksin has continued to pull political strings remotely, and his ideological heirs were returned to power in 2007. However, last December they lost an election to Abhisit Vejjajiva, in a vote that Thaksin's supporters say was rigged by the army.
So far, so unsurprising. Mark Mobius, executive chairman of Templeton Asset Management, says: "Thailand is not new to political turmoil. Political uncertainties and changes in government have been a way of life for the Thais since absolute monarchy was abolished in 1932.
"The current power struggle is effectively a clash between two groups of lites one backing the middle class, especially in Bangkok, and the other the rural masses. The latest news indicates that the protesters have abandoned their siege at Government House and that the current stand-off has ended."
The infighting is hardly conducive to economic recovery. Thailand is fighting the worst recession in the region since the 1997-98 Asian crisis, with the World Bank forecasting that the Thai economy is set to shrink by as much as 3 per cent this year.
Thailand's finance minister, Korn Chatikavanij, believes that contraction could be as much as 4.4 per cent, although he is predicting a modest growth of around 1.4 per cent in 2010.
This dramatic shrinking of Thailand's economy, for the first time in more than 11 years, is in sharp contrast to the 1990s, when GDP was growing by as much as 10 per cent a year, giving it pride of place among the Asian Tigers.
On account of the recent disturbances, Thailand has now been given a negative outlook by the ratings agencies Standard & Poor's, Moody's and Fitch, all of which warn that further downgradings could follow if the unrest persists, and domestic and overseas investments are damaged further.
Also in the past week, Standard & Poor has lowered Thailand's domestic currency rating from A to A-minus, while the baht has already fallen 2 per cent against the dollar this year.
Tourism is an important foreign exchange earner. The industry, which employs two million people, has survived other setbacks, such as the Asian Sars outbreak, the tsunami of 2004 and the coup in 2006. Now, however, it appears to be in crisis, as at least five countries, including Britain, have warned their nationals not to visit Thailand, and those already there to avoid Bangkok and other trouble spots.
S&P credit analyst Kim Eng Tan says: "We believe that investor confidence has been damaged significantly as a result of the latest developments, while in the near term, inbound tourism will also be affected negatively.
"It could lead to increased investment outflow from Thailand. Tourism can rebound, but investor confidence will be very hard to get back. Investors are now likely to factor in the negative implications of political uncertainty in making their decisions."
Matthew Hildebrandt, an economist for JPMorgan in Singapore, also has concerns about a possible lasting effect of recent events. "The big issue is whether this will affect general investment in Thailand, especially in the automotive industry," he says. "For foreign companies already operating there, they may think twice about expanding. For companies not there already, they may think twice."
Credit Suisse was last week advising investors to "take profit" on Thai investments. Analyst Dan Fineman said that gains in global markets in the past month offered investors a chance to sell their Thai holdings, including property stocks.
He said in a report: "A return to the dark days of the second half of 2008 is not inevitable, but the risk of prolonged political tensions is high. We now suggest taking profit in key stocks and sectors we had previously liked."
Andrew Beal, manager of the Henderson TR Pacific investment trust since 2005, takes a different view. He thinks those with holdings in Thailand should hold fire as long as their portfolio is sufficiently diversified. "The TR Pacific fund is a diversified Asia ex-Japan fund, with only about 5 per cent of its holding in Thailand," says Beal. "Because the holding is part of a diversified portfolio I am still happy to take the risk."
The government plans to spend 1,570 billion baht (30bn) over three years on infrastructure projects, to create jobs and boost economic activity. It has already spent 116.7 billion baht on an introductory stimulus package, which has included a range of tax breaks, although finance minister Korn Chatikavanij has conceded that Thailand might now need to borrow more to pay for further stimulus measures in the wake of last week's events.
Like Beal, Templeton's Mobius is positive about Thailand's prospects. He says: "Since the end of absolute monarchy in 1932, Thailand has experienced 21 coups [of which 14 were successful], 22 general elections, and a government life span averaging just two years. As long as the nation's current monarchy system remains stable, we are optimistic that eventually a resolution will be reached."
Mobius adds: "Since the last coup, on 19 September 2006, Thailand's stock market declined by 29.5 per cent in the period to 31 March 2009. This performance was better than that of some key Asian markets, such as South Korea and Taiwan, and has come despite Thailand having six prime ministers, a general election, an airport shutdown, and numerous street protests and demonstrations, all within this period.
"We remain positive on Thailand's longer-term outlook and fundamentals. Thailand has natural resources, a diversified export base, a resilient domestic economy and a large population."
What seems to have taken some investment pundits by surprise is the extent to which the South-east Asian economies are linked to those of the West. Most now accept that they are totally interdependent, and there is no "decoupling" whereby Eastern economies, particularly China, can improve or deteriorate separately from their Western counterparts.
John Greenwood, chief economist at Invesco, warns that the American and European economies are likely to be key to recovery in South-east Asia, not least because of the volume of Chinese exports on which Thailand is also dependent. He says: "Talk of China decoupling from the developed economies is misguided.
"It is often commented that intra-Asian trade has become more important for Asian economies, suggesting a reduced dependence on the US. For example, Thailand's exports to China are about as large as its exports to the US, both representing around 15 per cent of total exports.
"However, many of Thailand's exports to China are then re-exported to the US after processing. This is a phenomenon for many Asian economies. Taking this into account, the exposure of many Asian economies to China falls sharply, with a corresponding rise in the dependence on the US."
Henderson's Andrew Beal says: "Thailand is an extensive exporter of agricultural products and commodities to China, and its trade is doing well. Thailand competes in the labour market as a cheap manufacturing centre, and still remains an important manufacturing base, although Vietnam and Indonesia have been grabbing market share."
Recovery of the tourism industry could also take some time. Beal comments: "Now that the protests have died down, continued threats of violence even though they have tended to be confined to Bangkok and have not generally affected tourist areas won't help the tourist industry. The risks have definitely risen, and there could be further violence, but the government is not likely to fall."
Independent financial adviser Malcolm Simpson of Cheltenham-based Ashley Law Cotswold says of investing in Thailand: "It really comes down to the client's attitude to risk and the motivation behind the decision.
"I would not recommend that somebody has all their money tied up in Thailand, but still see this as one of the strong economies in Asia. I believe that Asia generally is a good long-term investment for most people and see no reason why Thailand should not form part of a well-balanced investment portfolio."
Mobius remains sanguine: "We have been investing in Thailand for over 20 years and have seen Thailand go through numerous changes. Through these years, the country, its people and businesses have learnt to work through political uncertainty. Templeton's focus on value and company fundamentals puts us in good stead to manage through these uncertainties."
Bargain Hunter: Comparethemarket.com launches two-for-one cinema tickets offer
10 tips for taking out a personal loan
You'll need £220,000 for a minimum wage in your retirement
Pension freedom: Steve Webb answers your questions on the big shake-up
Bank-beating exchange rates on your international payments
- 1 Germanwings crash: Police make 'significant discovery' at home of co-pilot Andreas Lubitz
- 2 JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
- 3 The West has it totally wrong on Lee Kuan Yew
- 4 #FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
- 5 Jeremy Clarkson calls on trolls to leave producer Oisin Tymon alone: 'None of this is his fault'
Nigel Farage brands LGBT activists 'filth' and 'scum' and accuses them of scaring away his children after they invade his local pub
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Russia threatens Denmark with nuclear weapons if it tries to join Nato defence shield
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Germanwings plane crash live: Andreas Guenter Lubitz intentionally crashed flight 9525 into the Alps in act of mass murder and suicide – latest
iJobs Money & Business
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...
£16000 - £18000 per annum: Recruitment Genius: A position has arisen within th...
£50000 - £63000 per annum + excellent benefits : Ashdown Group: IT Manager / D...
Day In a Page
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station