Thailand: Buying Opportunity ... At Least For Now

[Thaising]

It was a bloodless coup that removed Thai prime minister Thaksin Shinawatra from power on Tuesday night. Still, figuratively at least, a majority of fund managers appear determined to act out the old precept of buying before the blood has dried in the streets.

According to Merrill Lynch, "Investors should be encouraged by the fact that the uncertainty surrounding Thaksin's tenure has been removed." Hence "the only sensible response" is to be overweight on Thai stocks.

Templeton Asset Management said, "If prices fall as a result of the current political situation, we may add ... to our holdings." CLSA, Kim Eng Securities, Baring Asset Management and various smaller funds were on the same line. Citigroup represented one of the few exceptions to the positive outlook and said it remained negative on Thai stocks.

Thursday trading on the Stock Exchange of Thailand (SET) followed the pattern indicated by the majority fund managers' advice. The SET index dropped by more than 4% within minutes after the market opened, but quickly recovered much of the lost ground to close down 9.99 points at 694.81.

Thailand's currency, the baht, lost nearly 2% against the US dollar immediately after the coup, but as of Thursday evening local time it had recovered more than half of the initial losses. The dollar was trading at 37.5650 baht, down from 37.7400 baht on Wednesday.

The by now royally endorsed military takeover indeed has the potential of restoring a goodly measure of stability to the Thai political scene. On the assumption that a respected technocrat - preferably perhaps with close links to the palace - is installed as civilian caretaker prime minister within two weeks as promised by coup leader General Sonthi Boonyaratklin, both domestic and foreign investors are likely to regain confidence in Thai markets and the economy.

The country's economic fundamentals, including its fiscal and foreign debt position, have remained sound throughout the period of political turmoil since late last year. With turmoil and uncertainty removed and a new government in place capable of acting to disburse public investment funds and address pressing regulatory issues, full-year economic growth should still come in at 4.5% or above.

But serious questions pertain to Thailand's longer-term economic and policy outlook. In his first address to the public, Sonthi indicated that new elections might be held about a year from now after drafting and ratification of a new constitution.

After a year's respite under technocratic rule, what will new elections bring? The coupmakers have made no economic-policy pronouncements, merely issuing the obligatory denunciations of the previous regime's alleged corrupt practices. The caretaker government is unlikely to pursue any far-reaching new initiatives. Beyond that, what are we to expect?

The People's Alliance for Democracy (PAD), which spearheaded the protest demonstrations against Thaksin and grew out of publisher Sondhi Limthongkul's political talk show Thailand Weekly, had a political agenda, but no economic one. Nonetheless, it brought together opposition figures from different social strata, interest groups, non-governmental organizations, and so on, with definite political-economic points of view.

Core PAD leader Somsak Kosaisuk is a state-enterprise labor leader who has been in the forefront of the fight against the privatization of the Electricity Generating Authority of Thailand (EGAT). Another core PAD leader, Somkiat Pongpaiboon, has called himself a campaigner against "Thaksinomics" and counterposed his own poverty-alleviation programs to Thaksin's allegedly ineffective and fraudulent "populist" policies to cope with rural poverty.

PAD leaders and spokespeople across the board have accused Thaksin of selling Thai strategic assets to foreigners to enrich himself and his family (the US$1.9 billion tax-free sale of Shin Corp to Singapore's Temasek) and have played the "nationalist" economic card.

The PAD welcomed campaigners against globalization and against an allegedly inequitable US-Thailand free-trade agreement. Leaders of the main opposition Democrat Party have chimed in at various times with related themes. In addition, given that the PAD sees itself as a staunch defender of the monarchy, elements of His Majesty King Bhumipol Adulyadej's concept of "Sufficiency Economy" calling for "moderation in all human endeavors, reining in expectations to within the bounds of self-support and self-reliance", have been propounded by PAD leaders.

This array of political-economic views, of course, does not amount to a coherent economic program; its elements are, in effect, little more than the negatives of Thaksin's principal economic policies. It was Thaksin's and his advisers' strategic economic aim to reduce Thailand's dependency on low-cost-labor manufacturing for export and to stimulate domestic demand to achieve self-sustaining economic expansion.

For this purpose, he saw it as necessary to foster entrepreneurial activity in the country's rural areas, where most of the population still lives and potential new demand could most effectively be unlocked. He also aimed gradually to privatize most state enterprises and target the proceeds of privatization for the development of large-scale infrastructure, both in the Bangkok metropolitan region and beyond, and to provide the rural north and northeast access to a modern transportation system.

Most of Thaksin's larger project proposals and undertakings will now be scrutinized by the incoming caretaker government. Implementation will be limited to projects already well under way. It will fall to the next elected government to define new economic priorities and approaches.

But it would appear to be a safe bet that the basic economic policy directions initiated by Thaksin over five years can only be substantially reversed or altered at the expense of economic stagnation, if not retrogression. Therein lie the new uncertainties beyond the next 12 months of extra-parliamentary rule.

[sleepyjohn]

According to Merrill Lynch, "Investors should be encouraged by the fact that the uncertainty surrounding Thaksin's tenure has been removed." Hence "the only sensible response" is to be overweight on Thai stocks.

Templeton Asset Management said, "If prices fall as a result of the current political situation, we may add ... to our holdings." CLSA, Kim Eng Securities, Baring Asset Management and various smaller funds were on the same line. Citigroup represented one of the few exceptions to the positive outlook and said it remained negative on Thai stocks.

It may not be wise to believe these people too easily. They are there to put their kids through expensive colleges. ML's suggesting being overweight in Thai stock is laughable, and almost certainly means they intend to reduce their holdings.

The fact is Thailand is now not a country that hasn't had a coup for 15 years and seems to be pretty stable. For the coming years it's going to be a country that just had a coup. A military coup. What if TRT look like they're going to win the next election? What of they don't? They have a big power base. What if a southerner puts a bomb somewhere a bit more newsworthy? Would you like to invest a few hundred million of your clients money here and risk the sack when there are plenty of alternatives that are much more business friendly?

Of course it could go to the moon, but doesn't a pro money manager have to think like this?

[lannarebirth]

A friend of mine did a study of Merril Lynch Buy/Sell recommendations(as they're notorious liars). If one bought when they issued a sell warning and sold when they issued a buy, you could more than double the market return. That said, I have no idea what the Thai market may do here, but if I were wagering, I'd guess an initial move that strongly reverses. Up to down, or down to up, I know not.

Don't just take my word for it: http://www.donttrustmerrilllynch.com/pages/1/index.htm

Edited September 23, 2006 by lannarebirth

[sleepyjohn]

accident

Edited September 23, 2006 by sleepyjohn

[anna234cn]

A friend of mine did a study of Merril Lynch Buy/Sell recommendations(as they're notorious liars). If one bought when they issued a sell warning and sold when they issued a buy, you could more than double the market return.

My finance teacher said so also coz when u know the news or info, it means that the stock price has been adjusted according to that info. The error would be whether the change of the stock price fully reflects the real change.

Well, recently I did a study on BH stock (Bumrungrad Hospital). I found its quite potential. And if there is a war coming, its price will speed up. hehe. kidding

[sleepyjohn]

"My finance teacher said so also coz when u know the news or info, it means that the stock price has been adjusted according to that info. The error would be whether the change of the stock price fully reflects the real change.

Well, recently I did a study on BH stock (Bumrungrad Hospital). I found its quite potential. And if there is a war coming, its price will speed up. hehe. kidding"

????

Edited September 23, 2006 by sleepyjohn

[cclub75]

It may not be wise to believe these people too easily. They are there to put their kids through expensive colleges. ML's suggesting being overweight in Thai stock is laughable, and almost certainly means they intend to reduce their holdings.

Agree.

Fed up with thoses manager who are living in wonderland, drinking pink LSD cocktails.

At that time the only intelligent option is : wait and see.

1- we need to assess all the dust that went under the carpet with Thaksin : hidden liabilities. off balance... I think we could be surprised... That's the job of CDRM and the the next government.

2- we need to know what will be the economic policy of the next government.

Thaksin's economic policy was... creative in a way. And specially designed to pump fuel into the machine. Good on short term, but can turn sour. So what's next ?

Of course, if you are loaded with cash, why not make a bet. And buy the SET now.

[ya5702]

A friend of mine did a study of Merril Lynch Buy/Sell recommendations(as they're notorious liars). If one bought when they issued a sell warning and sold when they issued a buy, you could more than double the market return. That said, I have no idea what the Thai market may do here, but if I were wagering, I'd guess an initial move that strongly reverses. Up to down, or down to up, I know not.

Don't just take my word for it: http://www.donttrustmerrilllynch.com/pages/1/index.htm

It is common knowledge that "Financial Advisors" and "Brokers" always have the "win-win" formula: theirs!

You buy, they win; you sell, they win! Have you wondered why they are called Brokers?

[OldAsiaHand]

Letters exactly like this flooded my inbox from every international broker with even a passing interest in the SET before the tank crews had even shut down their engines. Ignore them. For brokers, everything is 'a buying opportunity.' Did you ever get a letter from a broker hyping 'a selling opportunity?'

[Khun Jean]

I saw a program on TV where professional financial experts gave buy and sell advise.

And there were hamsters they put in a maze, and at the end of the maze there were small notes with sell/buy signs. The goal was to buy stock and sell in a st period.

The hamsters won!

I would invest in land in Thailand when the Thai baht is 150 for 1 euro. About 3 times more than now. If not then i invest in my own country where i know the rules, instead in a country with no rules.

[englishoak]

I would invest in land in Thailand when the Thai baht is 150 for 1 euro. About 3 times more than now. If not then i invest in my own country where i know the rules,instead in a country with no rules.

Agreed

I would like to add that although they do actually have some rules, there is every possibility that they will change. It is unlikely but possible that future laws will change for the worse for us farangs and mabe our wives too...... I'd only invest what I would be prepared to lose in Thailand ........ And i'm not pointing a finger at Thai people here but the Thai government.

Remember we have few rights as it is and they can be retracted as easily as extended.