Thaksin and Pheu Thai Party face constitutional showdown

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WATCH DOG

Reason for optimism as funds pour in and growth continues

By Nophakhun Limsamarnphun

A LAGGARD for an extended period, Thailand now looks like a new favourite in Asean for global fund managers amid increasing uncertainties in the world economy.

Foreign fund inflows have risen significantly after the country lost nearly US$2 billion (Bt63.8 billion) during the political crisis and riots of April and May. Foreign purchases of Thai stocks have risen to nearly Bt15 billion over the past two weeks while the baht has strengthened to Bt32 per dollar on rising capital inflows, strong exports and GDP growth.

Many analysts believe that the worst of Thailand's street politics is over, and the current Abhisit government should be able to run the country until the next election takes place in the second half of next year.

JP Morgan, the US investment bank, is now probably the most bullish on Thailand, forecasting a GDP growth rate of 8.5 per cent for 2010.

For Indonesia, Malaysia and Philippines, its growth forecasts are 6 per cent, 7.2 per cent and 6.8 per cent, respectively.

In other words, Asean as a whole (forecast to grow 7 per cent this year) is now overweight for portfolio investments.

However, there remain some concerns on China's growth, as well as on the fragile recovery of the US economy and the European Union, which could affect exports from Southeast Asia in the remaining months of this year and well into 2011.

Previously, emerging market funds were somewhat overweight on Indonesia and underweight on Thailand, Malaysia and the Philippines. Now, they have turned neutral on Indonesia and overweight on the latter three economies.

Thailand is also witnessing a comeback of offshore funds on the strength of its recovery from the 2009 GDP contraction.

The first-half GDP expanded 10 per cent year-on-year, while the second half could see up to 7 per cent growth, resulting in an 8.5 per cent growth rate for the whole year.

So far, the growth has been export-led, with June shipments jumping 40 per cent. The Commerce Ministry said the whole-year export growth could reach 20 per cent.

In addition, growth is expected to encompass domestic demand in terms of consumption in the second half of 2010 and 2011, even though external demand would likely ease, according to JP Morgan.

Earlier, there were worries that the political crisis could hit consumer confidence badly. However, it turned out confidence was up for the third straight month since the end of the political turmoil, according to the University of the Thai Chamber of Commerce index.

According to JP Morgan, maturing foreign investment funds (FIFs) could support continued local inflows into the Thai capital market, as Bt73 billion worth of FIFs are expected to mature in the second half of this year.

Despite the 21 per cent rally of stock prices (year to date), foreigners remained net sellers to the tune of $117 million, but August's inflow suggests the possibility of increased foreign inflows, which could drive the Thai market to re-rate to the range of 2006-2008, when the bottom end of valuations was around 13 times, according to JP Morgan.

In this context, the removal of court injunctions on Map Ta Phut investment projects, the announcement of a clear election timetable, and the Constitutional Court's verdict on the Democrat Party's dissolution are among key factors that will affect Thailand's outlook for portfolio investments.

-- The Nation 2010-08-14