Mastering The Thai Stock Market

Ever wanted to become rich quickly? Well, we’re not suggesting that we know how to do that. But we know how to quickly lose money. By playing the Thai stock market. Not an easy playing field. But then again, there are stocks and stocks. If you are bored with having your money in a low-interest Thai bank and would appreciate a promising local investment with a twist.

Why not having a look at Thai small cap stocks. Not the big cap stocks everybody is buying. But the little undervalued treasures. And we’re not suggesting speculative short-term trading, but laid-back long-term investing for high cash dividends and growth in earnings that can pay off handsomely.

The guru of rational long-term investing in Thai stocks is Swiss-French Paul A. Renaud, a Phuket resident who’s doing nothing else for the past 19 years than analyzing the Thai stock market. Renaud’s the connoisseur of undervalued and yet fast growing smaller capitalized Thai companies. And he’s about the only analyst who covers them. And Renaud assures us: “Longer term investors who own a broadly diversified portfolio of such Thai value-shares have done very well.”

Well, you’ll say that any analyst will not tell the truth about his real figures of return. Be free, have a stroll through Renaud’s own website ThaiStocks.com and get a first taste.

But remember, Thai stocks are nothing for the fainthearted.

I remember myself, after the financial crisis in ’97, when Thailand’s main index SET went down below 200 points for a short time. What a rare buying opportunity it was. When everybody’s fleeing, you have to be there.

But too many ruins were scattered around. Didn’t have the stomach back then for a solid buy, especially not for lesser known Thai stocks, as they seem to contradict regional and global trends to this day. An irrational beast quite often, impossible to domesticate.

Furthermore, if you visit one of the larger brokers in Bangkok and see those “gambling halls” with the big screens and see who’s gambling there, you just must get suspicious.

Trading stocks for many Thais is a matter of gambling, if not pastime. Buy, sell, sell, buy. Whole mornings, whole afternoons.

With a relatively small amount of money one can move whole companies, while many companies only trade a small percentage of their stocks and therefore boost their own value artificially.

But trust Renaud who has visited most companies he analyzes and doesn’t promise double-digit profits within weeks. Thailand’s stock market for the rest of this year he describes as “will gyrate higher by year-end, but it’s always more a market of stocks than a stock market.”

A word first though about Thailand’s general outlook and emerging market stocks as a whole. The whole global financial system remains overshadowed by the fear of implosion of the U.S. credit and financial system.

The fear therefore will last for quite some time with rallies and sell-offs, alternating.

Emerging Asia would not go into a crisis. Macro-fundamentals are better in Asia. Investors can feel comfortable buying Thai stocks. Regional stock markets however will not escape the fall-out from the U.S.

But how deep will Thailand’s troubles be due to the problems in the U.S.? Thailand is mostly a domestic spending story, as domestic spending makes up 70% of the economy here and regardless of all the negative press and high oil prices, domestic spending in the kingdom is on the increase.

Furthermore, trillions of baht sit in Thai bank accounts earning very little interest and Thailand has some hundreds of millions of baht in foreign reserves. Thailand sits on huge domestic liquidities.

“And due to the calculating methodology of the SET,” says Renaud, “many company’s P/Es and dividend yields are understated. Even the MAI index last year increased some 50%, but this is hardly ever reported …”

But with the new government in place and the generals far away, are Thailand’s political risks all but gone? Is the Samak-government a buy?

Tells us Renaud: “Thai politics are just about always messy. In the early 90s it was very messy, yet back then the SET index went from 400 to 1.600. Business seems to have gotten used to it. All along we manage to generate good returns, regardless of bad politics. Good and growing companies with high dividends don’t care that much about political noise. Business goes on regardless. Just now there is again a political impasse, yet the local stock market is just sitting still. We are medium- to long-term investors, so we don’t worry about day-to-day noise.”

But then again, the market capitalization of the Thai stock market remains rather small. A reason why foreign investors keep neglecting it?

Renaud: “Partly true. Because the market capitalization is small and international investors have gotten so big. There are not enough very large cap stocks in Thailand, such as PTT or BBL. Most international investors are funds and trusts etc. And these are and must be liquidity obsessed. There’s not much liquidity in smaller cap stocks.”

But then again, I may find attractive small cap stocks here with cash dividends – but have to face the currency risk. Where you see the baht heading to over the next few years?

Renaud: “Regardless if you buy small or big cap or even real estate in Thailand, you have the currency risk. Recently the currency risk reality has rather been with moneys from developed countries. Take the U.S. dollar. Even the Swiss franc. The Thai baht has gone up some 10% over the past three years. If an investor is worried about the Thai currency they can buy stocks which benefit if the baht drops in value, like an export company.”

Says Renaud.

It goes without saying that you have to weigh up his enthusiasm with common sense. But if you’re not in a hurry and have some money on the side, giving Renaud a try may be a worthwhile investment.

The “exclusive membership” to get Renaud’s latest takes doesn’t come cheap at a yearly 980 U.S. dollars. Hefty, you’ll say.

And did I say that Thai stocks are nothing for the fainthearted?

Bring yourself up to speed first. Why not with Renaud’s Thailand stocks, a brief introduction.

And no, I don’t earn a satang by writing about Renaud. But this guy makes some sense for interested people.