Political Uncertainty Stymies Thai Stocks

[Jai Dee]

Around Asia's markets: Political uncertainty stymies Thai stocks

Thailand has the cheapest stocks in Asia relative to earnings and a central bank that's poised to stop raising interest rates. Yet the market is unlikely to recoup this year's losses because of a political stalemate.

The country's Parliament stopped functioning in April, after opposition parties boycotted an election called three years early by Prime Minister Thaksin Shinawatra. That prompted the government to delay spending at a time when higher borrowing costs and fuel prices hurt companies' profits and the economy.

The Parliament hasn't met since Feb. 24 and can't reconvene until a legitimate election takes place. Thailand's April 2 vote was annulled by the courts and the next election, scheduled for Oct. 15, may be derailed.

"Companies look attractive, but right now the political risk premium is rising," said Alistair Thompson, who helps manage $13 billion of equities in global emerging markets at First State Investments in Singapore.

Thailand's SET Index, which trailed a rally across Asia last week, is valued at 10.3 times estimated earnings. The ratio is the lowest among 14 Asia-Pacific indexes tracked by Bloomberg News. PTT, the nation's biggest energy company and the SET's largest member, is even cheaper, at 7.2 times.

The Bank of Thailand said last month that its benchmark interest rate was at an "appropriate" level, indicating that a run of nine consecutive increases was drawing to an end. The central bank holds its next policy meeting July 19.

"I don't think lower interest rates or stopping interest-rate hikes will help that much," said Ekachai Chongvisal, a fund manger at Tisco Asset Management in Bangkok. "Given the uncertainty in politics, it's a difficult time."

The SET added 2.8 percent last week to 678.13, less than the 4.7 percent gain in Morgan Stanley Capital International's Asia-Pacific Index. Stocks rallied as the U.S. Federal Reserve, which raised its key rate for a 17th straight time, said the economy was moderating.

Relatively low prices didn't help Thai stocks escape a second-quarter rout in stock markets worldwide, triggered by concern about the impact of rising rates. The SET tumbled 7.5 percent, exceeding a 1.4 percent decline in MSCI's All Country World Index.

Earnings per share for the SET's members will fall 2.9 percent this year, which would be the first decline since 2002, according to a Citigroup estimate. DBS Vickers Securities Thailand forecasts a 1.9 percent drop for the 110 companies covered by its analysts.

Andrew Stotz, Citigroup's head of research in Bangkok, predicts that the SET will end the year at 650, or 4.1 percent less than last week's close.

"The risks are there," he said. "Even at 10 times, nine times, or eight times price to earnings, if there's no earnings growth it's not necessarily going to re-rate."

Many investors aren't convinced the market can rally. Low price-earnings ratios and high dividend yields are unlikely to translate into sustained gains for Thai stocks until political stability is restored, said Geoff Lewis, head of investment services at JF Asset Management in Hong Kong.

"It's a mess," said Lewis, whose firm manages about $81 billion in Asian assets and holds fewer Thai stocks than its benchmarks suggest. "It looks cheap, but we can't see a catalyst" for the market to rally.

Thailand has the cheapest stocks in Asia relative to earnings and a central bank that's poised to stop raising interest rates. Yet the market is unlikely to recoup this year's losses because of a political stalemate.

The country's Parliament stopped functioning in April, after opposition parties boycotted an election called three years early by Prime Minister Thaksin Shinawatra. That prompted the government to delay spending at a time when higher borrowing costs and fuel prices hurt companies' profits and the economy.

The Parliament hasn't met since Feb. 24 and can't reconvene until a legitimate election takes place. Thailand's April 2 vote was annulled by the courts and the next election, scheduled for Oct. 15, may be derailed.

"Companies look attractive, but right now the political risk premium is rising," said Alistair Thompson, who helps manage $13 billion of equities in global emerging markets at First State Investments in Singapore.

Thailand's SET Index, which trailed a rally across Asia last week, is valued at 10.3 times estimated earnings. The ratio is the lowest among 14 Asia-Pacific indexes tracked by Bloomberg News. PTT, the nation's biggest energy company and the SET's largest member, is even cheaper, at 7.2 times.

The Bank of Thailand said last month that its benchmark interest rate was at an "appropriate" level, indicating that a run of nine consecutive increases was drawing to an end. The central bank holds its next policy meeting July 19.

"I don't think lower interest rates or stopping interest-rate hikes will help that much," said Ekachai Chongvisal, a fund manger at Tisco Asset Management in Bangkok. "Given the uncertainty in politics, it's a difficult time."

The SET added 2.8 percent last week to 678.13, less than the 4.7 percent gain in Morgan Stanley Capital International's Asia-Pacific Index. Stocks rallied as the U.S. Federal Reserve, which raised its key rate for a 17th straight time, said the economy was moderating.

Relatively low prices didn't help Thai stocks escape a second-quarter rout in stock markets worldwide, triggered by concern about the impact of rising rates. The SET tumbled 7.5 percent, exceeding a 1.4 percent decline in MSCI's All Country World Index.

Earnings per share for the SET's members will fall 2.9 percent this year, which would be the first decline since 2002, according to a Citigroup estimate. DBS Vickers Securities Thailand forecasts a 1.9 percent drop for the 110 companies covered by its analysts.

Andrew Stotz, Citigroup's head of research in Bangkok, predicts that the SET will end the year at 650, or 4.1 percent less than last week's close.

"The risks are there," he said. "Even at 10 times, nine times, or eight times price to earnings, if there's no earnings growth it's not necessarily going to re-rate."

Many investors aren't convinced the market can rally. Low price-earnings ratios and high dividend yields are unlikely to translate into sustained gains for Thai stocks until political stability is restored, said Geoff Lewis, head of investment services at JF Asset Management in Hong Kong.

"It's a mess," said Lewis, whose firm manages about $81 billion in Asian assets and holds fewer Thai stocks than its benchmarks suggest. "It looks cheap, but we can't see a catalyst" for the market to rally.

Source: International Herald Tribune - 3 July 2006

[Jai Dee]

DPM Somkid says investment is affected by political uncertainty

Deputy Prime Minister and Commerce Minister Somkid Jatusripitak has admitted that the current political ambiguity has affected the investment sector in Thailand.

Dr. Somkid had a discussion with four private associations, namely the Federation of Thai Industries (FTI), the Thai Chamber of Commerce, the Thai Banker’s Association, and the Thailand Securities Institute, on the establishment of the Public Private Partnership (PPP) for the Small and Medium Enterprises (SMEs). They also discussed the plan to concretely develop the SMEs and the economic forecast of the second half of this year.

The Commerce Minister said he believes investors from abroad will continue to invest in Thailand, but the amount may be smaller than projected. He has therefore asked the private sector to help promote confidence among foreign investors. He said Thailand’s economic foundation is still strong and the export sector continues to profit despite certain deficits.

He stated that the private sector will have to increase their competencies and expertise. The private sector will also be the main agency to promote the energy policy.

Source: Thai National News Bureau Public Relations Department - 03 July 2006