Thai equities: hot stuff, but can they stay that way?

Thai investors are getting jittery over the failure of US politicians to make a deal averting an impending “fiscal cliff” at the end of this year. They shouldn’t. American brinkmanship is becoming routine and the strong performance this year by Thailand’s stock exchange should keep investors engaged.

The Stock Exchange of Thailand has excelled itself in the last 12 months, up over 30 per cent this week from a year ago.

SET’s executive vice president Chanitr Charnchainarong said he expects around 25 Thai companies to launch initial public offerings on the exchange in the next few weeks. Of the 50 new companies listed in the past two years, only three are trading below their offer price.

Chanitr puts Thailand’s recent success down to a strong rebound in investor confidence, which was took a hit amid the country’s devastating floods late last year. The floods disrupted the country’s large manufacturing sector and transport network, slashed economic growth to near zero in 2011 and cost around $45.7bn, according to the World Bank.

But Thailand is now in the grip of what is looking increasingly like an M&A boom, topped on Wednesday with news of the $9.4bn deal by Thai agribusiness giant Charoen Pokhpand Group for HSBC’s stake in China’s second largest insurer, Ping An. Large acquisitions by other local companies including state-controlled energy giant PTT have helped push up share prices and opened new markets. So far this year, Thailand’s outbound acquisitions are up nearly 30 per cent from the same period last year and the total number of Thai M&A deals have hit a record $18.7bn – more than 2010 and 2011 combined, according to Thomson Reuters data.

Domestically, consumer demand in Thailand, particularly for energy and cars, is seeing a resurgence, thanks to the government’s generous first-car buyer subsidy scheme, which ends on December 31.

Raymond Maguire, head of research at UBS Securities Thailand, recently predicted that 2013 would be another good year for the SET, driven largely by local investors. Citing property, transport and telecommunications as likely growth sectors, he described Thailand as “one of the best stock markets in the world given its economic strengths and reasonable prices”.

The neighbours however are not about to let Thailand claim all the success. The Philippines’ equity index has almost tripled since 2009 and the word “Myanmar” is becoming increasingly synonymous with “investment opportunity.”

And while Thai stocks are looking shiny, there are some concerns about fundamentals.

The 2011 flood crisis and resulting economic slump exposed the vulnerability of Thailand’s stock market to external forces. While the US fiscal cliff is likely to have a crash mat at the bottom, the eurozone crisis has no such buffer. Thailand exported $24bn worth of goods to European Union countries in 2011 – more than to the US or Japan. Some analysts have pointed out that domestic growth and Asian regional demand will help Thailand rise above economic downturns in key markets. But neither is yet a substitute for the export-driven boom that has driven recent growth.

Fundamentally, Thailand is tied very closely to the economic health of the developed world. The question for 2013 is whether its stock market can buck that trend.

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