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Thai growth to be solid: UBS

WICHIT CHAITRONG

THE NATION

BANGKOK: -- The political situations in China and Europe will contribute to volatility in global financial markets, but the Thai economy is expected to grow at a reasonable pace this year and next, said Paul Donovan, managing director and global economist at UBS Investment Research.

The Thai economy is expected to grow by 6 per cent this year as many businesses rebuild flood-damaged facilities and expand their operations, Donovan told a news conference yesterday.

Gross domestic product is expected to grow by 5.5 per cent next year because of a slight slowdown in investment from this year, he said.

Asked about the political situation in Thailand, Donovan said: "It is not much of a concern for us at this time."

However, he expressed concern about the political situation in Europe, where German Chancellor Angela Merkel is in essence trying to manage fiscal policies for other governments in the euro zone.

"It is a concern if government spending is cut too much and too quickly," he said.

The German leader is taking a tough position on fiscal discipline among members of the euro zone to shore up support at home ahead of a general election in October next year.

After the election she may have more room to compromise with other leaders, allowing them some room to spend money to boost their economies, Donovan said.

The uncertain political situation in Europe will cause high global financial volatility, as was seen immediately before and after the European leaders' summit last week, he said, pointing to large swings in global stock markets.

He was pessimistic about the outlook for the euro zone. "Generally speaking, the euro zone will basically have zero-per-cent growth over the next five years," he predicted.

One important issue is an ineffective monetary policy in Europe, he said.

Although the European Central Bank cut its key rate to a new low in the past few days, the impact will be limited, and commercial banks will not lend more money to investors and consumers, he said. Banks in Europe are under-capitalised and cannot find investors who want to put fresh funding into their banks. Therefore, they choose to reduce their lending, Donovan said.

Major banks have already withdrawn funding from East Asia and other parts of the world, which will affect trade finance and investment activities.

Given the size of the European economy, its weakness will have an impact on Asia, he said. Asia must rely more on domestic demand, and Asian banks will have to fill the gap left by European lenders. "It is both an opportunity for banks in Asia to expand their businesses and a challenge for them," he said.

Banks in Asia are well capitalised and stronger since going through the Asian financial crisis, he said.

Asian banks have already moved to provide financing for importers, exporters and investors after European banks withdrew some funding from Asia last year, he said.

He also pointed to the political situation in China, where the so-called Bo Xilai effect had prompted a wave of anti-corruption sentiment over the past six weeks, which had damaged the luxury-goods market in Hong Kong.

Long a popular place for shopping for fashionable brands made in Italy and elsewhere, the luxury market in Hong Kong was badly hurt by this political event, he said. "It is the kind of event that we are not used to."

Bo, once seen as a contender for the Chinese leadership, was expelled from the Community Party of China in April after a corruption scandal erupted in his stronghold of Chongqing. He had become popular after launching a campaign to revive a Maoist-style redistribution of wealth to the poor.

Donovan said he believed China would use public spending to boost growth by providing public housing and investing more in infrastructure projects. Chinese GDP is expected to grow about 8-8.5 per cent this year, as the government wants to make the power transition smooth to maintain a relatively high growth rate.

Other Asian countries will also use fiscal expansion rather than monetary policy to boost domestic demand, he added.

-- The Nation 2012-07-07

[yoshiwara]

Sometimes one finds individual banks making optimistic noises about particular countries. It is a mistake to take these statements as a green light for individual investment decisions. In recent times we have seen optimistic opinion pieces on for example Brazil and India only to find a year or two later the opinion climate go sour and by that time if one had made investments you would have been behind the curve, witness declines in both Brazil's and india's currencies, not to mention respective Government's capricious economic policies.

[JoePai]

The headline has a mistake - should not include the letter 'U'

[meand]

Stuff like this is definitely neither here nor there, it would be like saying I think the coin will come up on heads because.......

[Phatcharanan]

The Eurozone will have zero percent growth over the next 5 years?

Errrrrrrrrrrrrrrrrrrr, right.

[yoshiwara]

The Eurozone will have zero percent growth over the next 5 years?

Errrrrrrrrrrrrrrrrrrr, right.

It is a lazy broad brush.

[el jefe]

The Eurozone will have zero percent growth over the next 5 years?

Errrrrrrrrrrrrrrrrrrr, right.

It does seem a little overly optimistic.

[fletchsmile]

I agree with UBS that Thailand is an attractive place to invest for equities if you're looking mid-longer term. I recall a report of theirs in 2010 saying they were expecting stellar performance over next 5-10 years. Probably not quite as bullish as UBS, and not in to predicting GDP figures, but I find the mid-long term attractive.

I've been a fan of Thai equities since 1998 - assuming a mid-long term horizon, and despite the country shooting itself in the foot on a regular basis, I still hold that view. As I live here, it is my largest single country weighting in equities. In the same way if I lived in UK or US etc I would have a larger weighting in those as my home country.

[yoshiwara]

I agree with UBS that Thailand is an attractive place to invest for equities if you're looking mid-longer term. I recall a report of theirs in 2010 saying they were expecting stellar performance over next 5-10 years. Probably not quite as bullish as UBS, and not in to predicting GDP figures, but I find the mid-long term attractive.

I've been a fan of Thai equities since 1998 - assuming a mid-long term horizon, and despite the country shooting itself in the foot on a regular basis, I still hold that view. As I live here, it is my largest single country weighting in equities. In the same way if I lived in UK or US etc I would have a larger weighting in those as my home country.

My own view is that there are potential Thai political headwinds the next two years or so which make investing in Thai stocks right now an uncertain prospect. However there are one or two stocks which have my attention and tracking.