There has been much talk about Thailand turning the corner and putting half a decade of turmoil behind it following the recent surprise election victory of Yingluck Shinawatra and her Pheu Thai (For Thais) party. Managers of UK investment trusts with holdings in the South-East Asian nation are particularly hopeful right now. But other seasoned commentators of the Asian economic scene are warning that it might be a tad premature. Who's right?
The July 3 election unfolded more calmly and with less use of tear gas than had been feared. In the end, the Pheu Thai party secured a majority of the national vote (265 of the parliament’s 500 seats) on a high turnout and has persuaded five minority parties to join it in a coalition. The new prime minister – who is the younger sister and apparent protégé of Thaksin Shinawatra, Thailand’s prime minister from 2001-06 – has pledged to double the minimum wage and slash corporate tax from 30% to 23% but is seen as a bit wet behind the ears. She also wants to hand out free tablet computers.
Her more tried and tested older brother Thaksin (characterized as a "puppeteer" to the country's prime minister-elect in some quarters) is now in disgrace, lives mostly in exile in Dubai and still faces a prison term for corruption. He was ousted in a military coup in September 2006 which was followed in May 2010 by long-running street protests by supportive 'Red Shirts' in Bangkok. These nearly triggered a civil war, after 92 Red Shirts were killed in a military crackdown.
Grabbing the opportunity
As The Economist said in an article headlined 'A precious chance', against such a backdrop “it is natural to wonder about fresh divisions. Yet there are reasons to hope that Thailand has the best chance in years to start putting its divisions behind it.”
Investment trust managers with significant holdings in Thailand agree with the latter statement. In a press release, London-based industry group the Association of Investment Companies canvassed the views of several investment trust managers with holdings in the Thai economy.
Hugh Young, manager of Aberdeen New Thai, the only investment trust that invests exclusively in the South-East Asian nation, said some investors might be put off by the "merry-go-round of Thai politics" but recommended they delve deeper and examine the inherent qualities of many Thai companies, which he said are benefiting from improving standards of corporate governance. He added:
“Balance sheets are healthy, reflecting perhaps the extraordinary damage done during the Asian crisis in the late 1990s and the extent to which lessons were learned. As an investor, such fundamentals provide me with both comfort and excitement.”
Mike Kerley, who manages the Henderson Far East Income investment trust, told the AIC that:
“The market was jittery prior to the election as it was feared that no clear majority would have led to horse-trading as the two main parties would have fought for coalition partners to form a government. The majority won by Pheu Thai has removed this risk, however coalition partners will still need to be found to gain a majority in the lower house, which will provide welcome checks and balances in the short term."
Kerley added that the “stated pro-growth populist measures from the new government should encourage strong growth going forward.” Richard Titherington, manager of the JP Morgan Global Emerging Markets Income Trust, said:
“The election outcome is positive for Thailand. It basically implies that we now can move on and not be bogged down by further political issues in the medium term. The market has reacted positively, which has been favourable to the short term performance of the trust.”
Invest with caution
However, Kerley did sound a note of caution. He said there's a risk that Yingluck Shinawatra, 44, could be a “Trojan Horse” for the disgraced former leader to return to power. Other voices believe that an inexperienced leader is no passport to economic transformation. Tokyo-based Bloomberg columnist William Pesek, writing in the Sydney Morning Herald, warned that:
“The riot shields, clubs and guns may not be idle for long. It's something investors pouring into Thai assets this week should consider. The assumption that political stability has returned to one of the world's most chaotic democracies could be a costly one.”
There are also concerns that Shinawatra's plan to double the minimum wage in Thailand 300 baht a day ($10) and further "boosterism" such as the tablet ploy could trigger inflation. Nandor von der Luehe, chair of the Joint Foreign Chambers of Commerce, has warned that unless raising the minimum wage is accompanied by productivity gains, increasing the minimum wage "does not work". And it exporters are worried it will dent their competitiveness.
Further reading on Thailand, South-East Asia economy and emerging markets:
- Asia, Europe and the US: not decoupling but recoupling by Anthony Harrington
- Commodity prices – just Murphy’s law at work? by Anthony Harrington
- Assessing Opportunities for Growth in Developing Countries of Micro, Small, and Medium-Size Enterprises by Montague Lord
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