Investor’s No-Go Zone Thailand?

Should investors avoid Thailand? Investors fleeing usually mark the moment for canny investors to enter a market. But then again, it’s a whole ‘nother world here in this village called Thailand.

They not only do things different here, things are different here. What may look absurd to the outside world is a natural state of affairs in Thailand.

We asked a banker of renowned private Swiss bank Julius Bär the unanswerable question. Should investors finally wash their hands of Thailand?

By Nicole Sze*, Bank Julius Bär

It is ironical that, in the end, Samak’s downfall was brought about by a seemingly innocuous court case of been a paid host for a cooking program while serving his tenure as PM. Even if Samak’s exit were to pave the way for new elections, the pro-Thaksin People’s Power Party would likely sweep back to power, albeit in another political form.

Political instability is likely to weigh on investor sentiment, economic growth and the equities market in the short term and negate the effectiveness of any stimulative fiscal or monetary policies.

Thailand’s August inflation dropped sharply to 6.4% (from 9.2% in July) but the mounting political tension is likely to eclipse any good news on the inflation front. The continued depreciation of the THB could put renewed pressure on inflation towards the end of the year.

The equities market is the clear victim in the political games. Economic growth for 2H08 is also at risk as we could expect foreign investments to remain on hold or worse still, we could see foreign capital pulling out along with the heightened political risk.

During the last coup, it was estimated that foreign capital dropped by 35% before the coup and declined by another 15-20% for the remainder of the year. Economic development and infrastructure spending will be derailed by the ongoing political mess.

Thailand started 2008 with a bang, as investors see it as a safe haven from slowing G3 growth and a country poised to enjoy robust economic growth on the back of renewed consumer spending post elections.

Nine months later, a deteriorating outlook for domestic demand, tourism and FDI is taking the shine off the resilience of the Thai economy. Exports which have helped bolster the economic growth for 1H08 are fast losing steam as the country feels the effect of a slowing global economy and waning demand.

Once again, Thailand’s chance of an economic rejuvenation is scuppered by the political divide between the Bangkokian elites and the populist government that has appealed to the hearts and minds of Thai rural voters.

Thailand needs to unite on the political front before any semblance of investor confidence can be regained. Until then, its economic performance is likely to continue to be sub par. The country’s stock market and the currency would remain vulnerable and continue to weaken.

* Ms. Nicole Sze is Senior Equities Analyst at Bank Julius Bär & Co. Ltd., Singapore.

Disclaimer: The views expressed here are personal and do not necessarily reflect the views of the employer.




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September 10, 2008 | Filed Under Business & Economics, Politics, Property & Investment 

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