Investors Cut Thai Exposure

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Investors cut Thai exposure amid violence

SINGAPORE: Alarmed by communal violence, outbreaks of bird flu and a year of stock market losses, fund managers are reducing their exposure to Thailand and putting money in neighbouring Malaysia.

Investors say recent clashes involving Muslims in the south of the country have added to the bearishness of a market that has lost 18 percent this year, the worst performance in Asia. That follows a stellar 2003, when Thailand offered the world’s best returns.

Mutual funds invested in Thailand shrank by $376 million in the 9 months to September, Nomura International data shows. Analysts said the outflow probably continued through October, when the Thai stock market fell 2.6 percent.

In the same period, about $848 million flowed into Malaysia, where reforms and a corruption-fighting agenda launched by Prime Minister Abdullah Ahmad Badawi has helped pushed the market up 11 percent this year.

“The prime minister in Thailand has undoubtedly gone through his honeymoon period, and I think he is facing a lot of challenges,” said Alistair Thompson of First State Investments, which manages $4 billion to $5 billion in the Asia-Pacific.

“Our portfolio is extremely tight when it comes to Thailand,” said Thompson, Asia-Pacific deputy head of equities ex-Japan. “The fact that we have only about 3 percent of the portfolio invested in Thailand suggests we cannot find compelling value.”

Three companies fill that Thai portfolio — third-ranked bank Kasikornbank PCL, coal miner Banpu PCL and television broadcaster BEC World PCL.

Political risk: News on Tuesday that suspected Islamic militants had beheaded an elderly man, the second Buddhist decapitated in a week, and shot dead two Buddhist workers in apparent revenge for the October deaths of 85 Muslim protesters underlined the risk of instability in the south.

“The violence in the south doesn’t help,” said Pieter van Putten, managing director of APS Asset Management, which manages $2.8 billion in Asian equities.

But Putten, like several other fund managers, said the violence alone was no reason to sell. The Muslim insurgency, he said, was not a threat to Thailand as a whole or to Prime Minister Thaksin Shinawatra’s chances of re-election next year.

Putten cited other negatives such as emerging competition from low-cost factories in neighbouring Vietnam, swelling consumer debt and a tough comparison with last year, when Thai stocks more than doubled. “We do see the potential — it’s not there already — for credit card-related problems as we have seen in South Korea, people basically spending too much without owning the money,” he said.

Outstanding credit card loans in Thailand more than doubled to $2.5 billion by the end of September from mid-2002, central bank data shows. The number of credit cards issued hit 8 million by September compared with 2 million in 1998, a year after the start of Thailand’s economic crisis.

“We don’t really see much action from either the central bank or the commercial banks to control that. So that is what is holding us back a bit from Thailand,” said Putten, whose portfolio is “a few percentage points” invested in Thailand.

Drawn to Malaysia: Kenneth Chan, a Nomura analyst in Hong Kong, expressed surprise over the outflows from the Bangkok market. “Thailand did so well last year and the economy is not that bad,” he said.

Thailand’s economy, stunted by an epidemic of bird flu, is forecast to grow about 6 percent this year. That is sturdy but below last year’s 6.8 percent and weaker than nearby Singapore and Malaysia, which are basking in their best economic growth in 4 years.

Thompson of First State invests about 8 percent of his portfolio in Malaysia, 11 percent in Singapore, 1 percent in the Philippines and 0.5 percent in Indonesia.

“We have found a fair amount of investment ideas in Malaysia over the last 2 years. It stacks up very well against Thailand,” he said. —Reuters