The result of the democratic elections and the coronation ensured “business as usual” for the Thai economy.
The trade war between the United States and China has had an impact, with growth expectations of 3-4% now lowered to just under 3%
There are a number of fast growing structural trends in the Thai economy including infrastructure development, tourism and consumption.
It has been a busy year in Thailand with the first democratic elections since the 2014 military coup. The country also saw the coronation of a new king, Maha Vajiralongkorn, after a long period of mourning. Both events went off without incident, allowing investors to focus on important topics of the Thai economy – infrastructure development, tourism and consumption.
The March elections saw a military-led party return to power with a slim majority. They are business-friendly and appear ready to continue their policies designed to promote economic growth and allow Thai businesses to thrive. While neither the elections nor the king’s coronation had a direct impact on the stock market, they provide continuity and a smooth transition at a time when the country faces a significant external threat from the US trade war. Chinese.
These external issues have been the elephant in the room for Thailand’s export-oriented economy. The impact has been a continued slowdown, with growth expectations of 3 to 4% now being revised downwards. 2019 growth is now expected to be just under 3%, with negative exports, comparable to other countries in the region.
Nonetheless, with a trade surplus and a current account surplus, the government is in a good position to stimulate the economy. One of the main ways it has chosen to spend its reserve capital is through infrastructure spending. This has been a key theme for the stock market and for us within the Aberdeen New Thai Investment fund.
The numbers are significant. There have been vast investments in the eastern part of the country, equivalent to around 10% of Thailand’s GDP. The spending was focused on increasing productivity and improving Thailand’s knowledge base. The airports have been modernized, as well as two major seaports. The high-speed train has also received special attention.
Nonetheless, this is an area in which investors should be careful. We’ve seen some of the top companies bid higher and higher, up to 80 times the profit in one notable case. We focused on “under the radar” companies, such as Eastern Water, which is focused on this expansion of Eastern infrastructure. This company provides water throughout the region, supplying industrial parks, municipalities and some of the major vacation destinations.
One of Thailand’s defining characteristics this year has been its strong currency, against both developed market currencies and emerging market currencies. It is one of the strongest at the regional level. The downturn strengthened the baht, but luckily it didn’t hurt tourism, which turned out to be another big theme in the portfolio.
Tourism spending accounts for around 10-12% of the Thai economy and as such is a critical part of its growth. The country is expected to experience steady growth in tourist arrivals of 3-4% per year, reaching nearly 42 million visitors in 2020.
It’s not just about backpackers and sun worshipers; we are increasingly seeing the growth of medical tourists. One of the companies in our portfolio is Bangkok Dusit, one of the largest hospital networks in the country. It has 48 hospitals and serves several different consumer segments. It operates a hub and spoke model, according to which references from “spokes” are directed to specialists at the “hub”, in particular Bangkok for the most technical work. The majority of its customers (80%) pay in cash rather than insurance, which gives it a cash flow advantage.
The history of the consumer has long been important in Thailand. This leads to growth in consumer credit, like that provided by AEON Thana Sinsap. Consumer credit is a growing field and there is now a massive demand for consumer credit in the market. The alternative being loan sharks, it is therefore welcome to borrow in the formal economy: lending rates are relatively high, but less than a quarter of those in the informal economy.
Thailand also plays a role as a regional hub, and many of our portfolio companies have exposure to fast-growing neighbors such as Cambodia, Laos and Vietnam. These countries are subject to similar trends to Thailand, including growing consumption. We own Central Pattana, an operator of shopping centers in the region. Its shopping centers remain a destination; people visit as much for the experience as for the shopping. Growth comes from expansion and upscaling, including new offices and hotels. The company has just opened in Malaysia.
Thai markets have echoed those around the world to the extent that cyclical businesses have done poorly – sectors such as energy and chemicals have been hit hard by trade tensions between the United States and China. In this confidence, we strive to find high quality companies that are there for the long term, regardless of geopolitical tensions. They have good margins and good cash flow and are managed by competent management teams. In our view, these companies should be resilient over the economic and political cycle.
The value of investments and the income from them may go down and investors may get back less than the amount invested.
Past performance is no guarantee of future results.
Investment in the Company may not be suitable for investors who plan to withdraw their money within 5 years.
The Company may borrow to finance other investments (gearing). The use of gearing is likely to cause volatility in the net asset value (NAV), which means that any movement in the value of the company’s assets will result in an amplified movement in the NAV.
The Company may accumulate investment positions which represent higher than normal trading volumes, which may make it difficult to make investments and may lead to volatility in the market price of the Company’s shares.
Fluctuations in exchange rates will impact both the level of income received and the capital value of your investment.
There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
As with all stock market investments, the value of the Company’s shares purchased will immediately decrease by the difference between the buy and sell prices, the bid-offer spread. If transaction volumes decrease, the bid-offer spread may widen.
The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment may rise or fall significantly.
Specialty funds that invest in smaller markets or industry sectors are likely to be more volatile than more diversified trusts.
Yields are estimated numbers and may fluctuate, there is no guarantee that future dividends will match or exceed historical dividends and some investors may be subject to additional dividend tax.
Other important information:
Issued by Aberdeen Asset Managers Limited which is authorized and regulated by the Financial Conduct Authority in the United Kingdom. Registered office: 10 Queen’s Terrace, Aberdeen AB10 1XL. Registered in Scotland under number 108419. An investment trust should only be considered as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or a solicitation to negotiate investments. You should obtain specific professional advice before making any investment decision.
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Orsen Karnburisudthi is an investment manager at Aberdeen New Thai Investment Trust PLC.