Asset and fund managers have positive view of Thailand after election

Investors might be encouraged to take another look at investment prospects in Thailand as five years of political turmoil comes to an end with Pheu Thai party the surprise clear election winner, led by Yingluck Shinawatra, sister of ousted PM Thaksin Shinawatra.

Despite the political turbulence in Thailand in recent years, precipitated by a military coup almost five years ago in September 2006, investment company managers with the larger holdings in Thailand appear unanimously upbeat about the prospects for Thailand.

In fact, Aberdeen New Thai, the only purely Thailand focused investment company, is up 102% over the last five years to 30 June 2011, whilst the average investment company is up 30%. Over the last year, Aberdeen New Thai is up 25%, compared to a 19% rise in the average investment company.
 
‘Thailand is a perfect example of why investors should look beyond the headlines when making investment decisions. The merry go round of Thai politics could easily dissuade investors from looking any further into a fast growing economy which is home to some good quality companies,’ said Hugh Young, manager, Aberdeen New Thai.

‘It has invested heavily in director training, adopted best practices with respect to accounting standards and other statutory processes, and boasts a generally strong and vibrant corporate sector,’ he explained.

‘Furthermore, we have found that companies themselves tend to be in better shape than many of their counterparts elsewhere in Asia. 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,’ he added.

According to Mike Kerley, manager at Henderson Far East Income, 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. But 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. The election win by a party connected to Thaksin Shinawatra could have caused anxiety, however comments from the army stating that the people have chosen and backing the result is reassuring,’ he said.

‘Risks remain should the new government try to bring back the disgraced former leader but the stated pro growth populist measures from the new government should encourage strong growth going forward. Henderson Far East Income is 12% weighted in Thailand and we remain positive on the short, medium and long-term outlook for the country,’ he added.

Richard Titherington, manager of the JPMorgan Global Emerging Markets Income Trust, believes that the election outcome is positive for Thailand due to its clear win nature. ‘This 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,’ he said.
 
A note from the Asia ex Japan team at Schroders the win by Yingluck Shinawatra’s Pheu Thai party will bring foreign investment back into the country. ‘News of the decisiveness of the victory allayed market fears of a hung result and an ensuing political impasse. We view the outcome as a positive development for Thailand’s economy and its markets, and it should bring much needed political stability to the country,’ the note said.

‘The risk, however, remains that the Democrats and/or the military might stage a revolt. The likelihood of this occurring is, at present, very low in light of the Democrat Party leader Abhisit Vejjajiva conceding defeat and the army announcing that it had accepted the poll verdict and would not intervene,’ it adds.

Away from the politics, they view the economic fundamentals of Thailand as strong, with growth driven by demographics and urbanisation. ‘Secular trends, including high agriculture prices, growth in provincial areas on infrastructure improvements, as well as a pick up in foreign direct investments, are at the core of the country’s long term outlook,’ they said.

‘While we were conscious of an overhang in the market prompted by the political uncertainty leading up to this year’s elections, we have been increasingly positive on Thailand over the course of 2011.
 
‘Despite short term headwinds, we have focused our investment decisions on Thailand’s promising long term trends. In terms of our positioning, we have been adding to favoured names since the fourth quarter of last year. While we are positive overall, our focus continues to be on valuations. We are poised to take advantage of any interim volatility, which may provide us with an opportunity to add to our preferred names in the market, particularly in consumer related sectors,’ they added.