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Stimulus makes SET open to foreign shocks

Wichit Chaitrong

The Nation

Index could suffer 40% plunge: expert

BANGKOK: -- The government's economic stimulus package has helped push share prices up into dangerous territory and any shocks from the West or China could send the SET Index diving 40 per cent, a foreign financial expert has warned.

"Our worry is that it's really not a necessary policy. Thailand's economy has been recovering quite nicely since the floods," said Paul Gambles, managing partner of Bangkok-based MBMG Group, a financial-service provider.

He said he was extremely worried about public debt. Thailand and Indonesia had started from the same level but now Thailand's sovereign debt is approaching 60 per cent of gross domestic product while Indonesia is more conservative and keeps its public debt at about 30 per cent of GDP.

Government initiatives like the rice pledging, credit-card subsidy and first-car tax-rebate schemes have revved up economic activity and also sucked in massive capital flows, he said in an interview with The Nation.

The projects have involved a lot of capital commitment but some of them are quite long-term. Without government stimulus, the fair value of the Stock Exchange of Thailand would be about 10 per cent lower, he said.

Any negative economic news from the West such as the collapse of the euro, bank failures in the United States and Europe or trouble in China's banking system could spark a sharp fall of the Thai and other Asian equity markets.

If the SET Index plummets from the current 1,500 points to 1,300 or below 1,000, Gambles would recommend investors to buy Thai stocks aggressively.

Bank of Thailand chairman Virabongsa Ramangkura has called for its Monetary Policy Committee to cut the policy rate from the current 2.75 per cent to stem large capital inflows. However, Gambles did not agree with this proposal for a rate cut, though he shares Virabongsa's concern about a market bubble. He said the government should drop the stimulus measures instead.

If the central bank does lower the interest rate, the upside is that it would help weaken the baht, as the strong currency is causing a major headache for exporters right now, Gambles said. "But I think if we have the growth rate that we have currently, we have stimulus going on right now and then we have a weaker baht and lower interest rate, inflation will be a real problem."

Many people he has talked to are very worried about the rises in the prices of food, rents and wages. Structural wage inflation could come to resemble a cancer that embeds itself in the economy. The minimum wage has started going up to an excessive level that could get inflation out of control, he claimed.

Inflation in January was 3.39 per cent year on year.

Lowering the interest rate is not the right solution because it would cause unintended consequences, he said. There should be other tools to tame the baht.

"The real answer would be that we fix a core fundamental policy issue if we take away a lot of stimulus. If we start to reduce government debt, that will deal with the strength of the baht," he said.

Interest rates should be higher right now. Cutting rates is exactly the wrong way, he said.

Joanne Baynham, MitonOptimal's head of international portfolio management, also cautioned against a rate cut.

Reducing rates would encourage people to take money out of the bank and spend it, as people don't get a return from lower interest rates but from high inflation rates.

"Ultimately, it'll lead to inflation. It's a very dangerous game. Be careful," she said.

Year to date capital inflows (US dollars)

India $7.134 billion

Taiwan $1.589 billion

Indonesia $957 million

Philippines $802 million

Thailand $192 million

Vietnam $170 million

Source: Deutsche Bank/Tisco Securities

-- The Nation 2013-02-12

[kblaze]

Of course the collapse of the Euro or a banking failure would result in a stock market shock...wow real insightful stuff Paul.

This guy gets a free (maybe its not free) plug on the nation every other month or so, and he doesn't offer anything of note.

here in january he talks about people losing 50% in a correction

http://www.nationmultimedia.com/opinion/Happy-New-Year-but-is-the-economic-war-over--30197303.html

here in november (when the SET was around 1220 - now its 1500) he recommends waiting for a 30-40% drop in prices

http://www.nationmultimedia.com/business/Not-time-to-invest-in-Thai-stocks-says-financial-a-30193882.html

In August - "Unless you are prepared to lose 40 per cent of your assets, which you might not ever be able to recover, you should completely avoid equity exposure right now,"

http://www.nationmultimedia.com/business/Another-Great-Depression-a-sure-thing-30188238.html

Also in August - "Therefore, the forward outlook for the global economy over the medium term, the next 12 months or so, has probably never been bleaker" -

http://www.nationmultimedia.com/opinion/No-happy-ending-likely-as-the-four-horsemen-ride-i-30163982.html

Meanwhile we are 6 months in and things haven't crashed all around us.

[MikeThaison]

Atleast

Of course the collapse of the Euro or a banking failure would result in a stock market shock...wow real insightful stuff Paul.

This guy gets a free (maybe its not free) plug on the nation every other month or so, and he doesn't offer anything of note.

here in january he talks about people losing 50% in a correction

http://www.nationmul...--30197303.html

here in november (when the SET was around 1220 - now its 1500) he recommends waiting for a 30-40% drop in prices

http://www.nationmul...a-30193882.html

In August - "Unless you are prepared to lose 40 per cent of your assets, which you might not ever be able to recover, you should completely avoid equity exposure right now,"

http://www.nationmul...g-30188238.html

Also in August - "Therefore, the forward outlook for the global economy over the medium term, the next 12 months or so, has probably never been bleaker" -

http://www.nationmul...i-30163982.html

Meanwhile we are 6 months in and things haven't crashed all around us.

At least give the guy some credit for sticking to his guns, he can't flip flop now. We all know that everything that goes up, must come down, so "eventually" maybe in the next decade this guy can finally brag and say, "I told you so."

[Soi Sauce]

It's gonna happen as the baht falls and the clan buy up Thailand on the cheap. On the cards since they came to power.

A planned economy, in reverse, but lots of cash to be had.

[IsaanUSA]

Thailand's $192 million capital inflow looks to be one of the lowest in the region, however I have no idea how those numbers calculate out to percentages of GDP (or whatever).

[virtualtraveller]

The best part of it this, as far as I can see with my anti Shinawatra glasses on, is that this is coming closer to a potential financial crash, on a smaller scale to '97 when the poor will all lose their jobs, and the nation will finally come to its senses and ditch this love affair with Shinawatra populism. It was fun while it lasted but is not sustainable and the determination of Thaksin to effect so much 'vote buying' change so quickly will ultimately lead to his downfall in the hearts and minds of the masses he conned with his checkbook. He might be living his days out in Dubai after all.

[yoshiwara]

Atleast

Of course the collapse of the Euro or a banking failure would result in a stock market shock...wow real insightful stuff Paul.

This guy gets a free (maybe its not free) plug on the nation every other month or so, and he doesn't offer anything of note.

here in january he talks about people losing 50% in a correction

http://www.nationmul...--30197303.html

here in november (when the SET was around 1220 - now its 1500) he recommends waiting for a 30-40% drop in prices

http://www.nationmul...a-30193882.html

In August - "Unless you are prepared to lose 40 per cent of your assets, which you might not ever be able to recover, you should completely avoid equity exposure right now,"

http://www.nationmul...g-30188238.html

Also in August - "Therefore, the forward outlook for the global economy over the medium term, the next 12 months or so, has probably never been bleaker" -

http://www.nationmul...i-30163982.html

Meanwhile we are 6 months in and things haven't crashed all around us.

At least give the guy some credit for sticking to his guns, he can't flip flop now. We all know that everything that goes up, must come down, so "eventually" maybe in the next decade this guy can finally brag and say, "I told you so."

Unfortunately he isn't the only one pushing that story. Plenty of expats do as well.

[Rancid]

Thailand is an expoter, foreign shocks will rattle it regardless of how much the current governmnet runs up the tab so they can steal a percentage. For all that probably better off than most European economies, and as to the great printer well time will tell.

[fletchsmile]

Of course the collapse of the Euro or a banking failure would result in a stock market shock...wow real insightful stuff Paul.

This guy gets a free (maybe its not free) plug on the nation every other month or so, and he doesn't offer anything of note.

here in january he talks about people losing 50% in a correction

http://www.nationmul...--30197303.html

here in november (when the SET was around 1220 - now its 1500) he recommends waiting for a 30-40% drop in prices

http://www.nationmul...a-30193882.html

In August - "Unless you are prepared to lose 40 per cent of your assets, which you might not ever be able to recover, you should completely avoid equity exposure right now,"

http://www.nationmul...g-30188238.html

Also in August - "Therefore, the forward outlook for the global economy over the medium term, the next 12 months or so, has probably never been bleaker" -

http://www.nationmul...i-30163982.html

Meanwhile we are 6 months in and things haven't crashed all around us.

Totally agree that you need to look at the history of these posts. I remember the previous warning of a potential 40% crash around as you say. This would have just taken people back to start of 2012. In the event, several of the Thai funds I own returned over 50% for 2012 alone.

Each year they are missing out on some stellar returns by attaching to much weight to the risk side of the risk return ratio in Thailand. The Thailand equity market will continue to be volatile, but avoiding it and trying to time it are both mistakes in my view. 5 years from now it will be higher than now.

Cheers

Fletch

[Naam]

Of course the collapse of the Euro or a banking failure would result in a stock market shock...wow real insightful stuff Paul.

This guy gets a free (maybe its not free) plug on the nation every other month or so, and he doesn't offer anything of note.

here in january he talks about people losing 50% in a correction

http://www.nationmul...--30197303.html

here in november (when the SET was around 1220 - now its 1500) he recommends waiting for a 30-40% drop in prices

http://www.nationmul...a-30193882.html

In August - "Unless you are prepared to lose 40 per cent of your assets, which you might not ever be able to recover, you should completely avoid equity exposure right now,"

http://www.nationmul...g-30188238.html

Also in August - "Therefore, the forward outlook for the global economy over the medium term, the next 12 months or so, has probably never been bleaker" -

http://www.nationmul...i-30163982.html

Meanwhile we are 6 months in and things haven't crashed all around us.

Totally agree that you need to look at the history of these posts. I remember the previous warning of a potential 40% crash around as you say. This would have just taken people back to start of 2012. In the event, several of the Thai funds I own returned over 50% for 2012 alone.

Each year they are missing out on some stellar returns by attaching to much weight to the risk side of the risk return ratio in Thailand. The Thailand equity market will continue to be volatile, but avoiding it and trying to time it are both mistakes in my view. 5 years from now it will be higher than now.

Cheers

Fletch

not to forget Paul's "huge big basket case" (AUD ~1½ years ago)

Edited February 15, 2013 by Naam