Thailand the new China: managers
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Philippa Yelland is a journalist with InvestorDaily, a Morningstar publication.
Analysts are bullish on Thailand, with its stockmarket rising 16 per cent this year, beating all the other main Asian indices, and leading fund managers to regard the country as possibly the best way to tap into the opening of Burma.
Fidelity Worldwide investment director Tom Stevenson said, in part, the market's rise reflected a quicker-than-expected recovery from last year's floods, as well as being "a consequence of a raft of pro-stimulus policies from the country's populist government, including a 40 per cent rise in the minimum wage and a sharp reduction in corporation tax from 30 per cent to 23 per cent, with 20 per cent in the pipeline for next year".
Colonial First State Global Asset Management investment markets research senior analyst James White said Thailand, with a population of about 70 million, had a key geographic advantage over its Association of Southeast Asian Nations (ASEAN) neighbours.
Seres Asset Management chief investment officer Evan Erlanson said much of the economy's strength came from within.
"Private consumption has grown 130 per cent (in baht terms) over the last 12 years and is currently growing at 7 per cent year on year (and accelerating)," Erlanson said.
"Pent-up demand from the Thai provincial economies and modernisation of the distribution chain have allowed a core group of companies to achieve scale and build on this foundation to expand regionally. The quality and competitiveness of Thai corporate earnings owe much to the experience of the Asian crisis."
AMP Capital senior portfolio manager Jonathan Reoch was slightly less bullish, saying the Thai economy "appears reasonably robust, while corporate earnings and balance sheets are in good shape".
While the 2011 floods were disruptive, Reoch said, economic activity had recovered in the first half of 2012, proving that was a temporary disruption, not a permanent scar on the economic landscape.
Stevenson said the Thai government was spending heavily on dams and flood defences as well as rail and road projects to promote the country as a distribution hub for the region, linking China with frontier markets such as Cambodia.
Reoch put a different angle on the floods, in relation to the government's overall moves on tax. "Corporate tax rates are also being cut as a sop to business as well as a move to make Thailand more competitive in advance of a full ASEAN Free Trade Agreement in 2015," he said.
"Unfortunately, the execution of these has proven haphazard, which, along with the government clearly bearing some responsibility for the recent floods, has resulted in their campaign to win confidence and votes quickly losing steam."
According to White, the political stability created by Yingluck Shinawatra's election in 2011 had resulted in investors taking a more positive view of Thailand's economy, enabling some investors to more favourably view its position as a link between the markets of ASEAN and southern China.
Another plus for investors was the lessons learned from the Asian crisis of 1997, Erlanson said.
Before 1997, the Thai family conglomerates were similar to many of today's Chinese conglomerates and state-owned enterprises, using low-cost debt to diversify into non-core businesses and property development.
"Post-crisis, however, the larger Thai business groups, such as CP, Saha and TCC, focused on consolidating their core businesses, generating cash flow and increasing exposure to frontier markets, such as Vietnam, Laos and Myanmar [Burma]," Erlanson said.
While China was Thailand's single largest export destination, he said ASEAN markets were even more important to Thailand's medium-term economic growth. Thai exports to ASEAN markets were now more than twice the size of exports to China.
"Moreover, exports to ASEAN markets are still growing, whereas exports to China peaked in August 2011, suggesting that China demand for Thai imports is closely linked to developed market demand rather than local demand," Erlanson said.
"Thailand has run a growing trade deficit with China for the last several years, compared to a large and growing trade surplus with both its ASEAN neighbours and other frontier Asian markets."
Reoch cautioned that "politically Thailand remains opaque, as the current government is clearly seen as transitory, with a large part of the government seen as proxies for other members of the Pheu Thai party, who are banned from politics until mid-2013".
"Thus, the government has an incentive to help build consumer confidence quickly as a means of winning voter confidence," he said.