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Downside risk for Thai equities after King’s death

In the near-term, Thai retail- and tourism-linked stocks could be down as a consequence of the year-long national period of mourning announced after the death of King Bhumibol Adulyadej on October 13, sources said.  

“GDP growth at 3% is good, however, it is doubtful that we will see a surge in growth in view of the King’s death and the national mourning which could continue for some time.,” said Mark Mobius, executive chairman of the Templeton emerging markets group, who leads the Templeton Thailand Fund.

Mobius said he monitors the automobile, housing and banking sectors as “good indicators regarding how the economy is doing. With growing dependence on local consumption for growth, those sectors would be the ones to watch.

“Large banks there look attractive to us, as growth has been reflected in the latest quarterly earnings reports and valuations appear reasonable.”

About 50% of the fund is invested in the consumer (27.5%) and financial (22%) sectors.

Reginald Tan, head of research, director of investment and portfolio manager of Amundi Funds Equity Thailand, added that Thai equities have done well this year – up 23% since January. In addition, expectations of annual real GDP growth are 3.1% in 2016 compared to 2.8% in 2015.

“Higher consensus estimates for GDP growth remain intact despite recent weaknesses in the market upon the King’s passing.

“We will be looking for follow-through actions on the fiscal spending front. This involves budget releases for projects and real signs of the planned infrastructure projects coming through.”

The fund’s top sector is basic materials (28%), followed by financials (20%) and industrials (17%).

Tan said he is also hoping for improving fund flows and a “return of tourist arrival numbers”. Tourism accounts for about 10% of Thailand’s GDP or around $60bn.

Elections and a looming new constitution could significantly impact investments. “Political stability remains a key factor to the Thailand economy with a new King yet to be sworn in.”

Mobius, a long-time optimist on emerging markets, unsurprisingly remains optimistic. “The good news is that the military has been able to create a stable environment in the face of possible background political noise.”

 

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Thai funds and the index plunged after the King’s death on October 13:

 

A sampling of the same five funds and the index performance over three years. The Thai equity index has been resilient despite an August 2015 bomb attack in central Bangkok and the January global markets plunge.

 

 

Drew Wilson

Drew Wilson is editor of Fund Selector Asia. Previously he was editor at a publication covering private equity.

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