Strategy Note /

Thailand: Political schism and slow growth

    Hasnain Malik
    Hasnain Malik

    Strategy & Head of Equity Research

    Tellimer Research
    11 February 2019
    Published by

    Upcoming election will likely not bridge the political divide – We do not expect the 24 March election in Thailand to drive a positive structural change. Politics remains split between those interests affiliated to the military versus those affiliated to the Shinawatras. Recent events demonstrate that this division extends to the royal family. New election rules increase the risk of fragmented, obstructionist parliamentary politics.

    Obstructionist Parliament may impede investment needed for growth – The era of low-cost labour driving export growth has passed, with Thai wages closer to China and Malaysia than, for example, Bangladesh, and with a rapidly aging population. Near term, growth is picking up modestly due to exports and tourism, but a substantial, sustained acceleration needs infrastructure and education investments (the “Thailand 4.0” development strategy announced in May 2016) to raise productivity. The elections matter to the degree that a democratically elected government succeeds the military regime in place since the coup of 2014 and, potentially, drives faster fiscal spend and private (domestic and foreign) capital mobilisation. But obstructionist parliamentary politics may act as an impediment.

    Greater value, growth and transformation elsewhere in Asia – Thailand equities are slightly cheap versus history but, in aggregate, offer low earnings growth and returns on equity. Although the FX rate is a little expensive versus REER, FX reserves are high, the current account is in surplus, inflation is contained and the fiscal deficit is minor. In our Asia small EM coverage, we prefer Bangladesh and Vietnam, see more opportunity in Indonesia and the Philippines among the larger markets, and see most likelihood of positive structural change in Pakistan. Although we are cautious on Thai equities top-down, our bottom-up analysts do find opportunity in consumer companies, like THBEV and CPF, which have built brand barriers to entry and are attractively valued. Click through to the full report, where we screen stocks for size, liquidity, performance and trailing valuation.