Stock specific growth is anticipated in Thailand, although uncertainty surrounding the financial sec...
Stock specific growth is anticipated in Thailand, although uncertainty surrounding the financial sector continues to sap investor confidence as the country heads towards another election.
Democrat Prime Minister Chuan Leekpai needs to call an election for within three weeks of 6 January. Chuan is not expected to be re-elected, as consensus suggests Chuan's main rival, Thaksin Shinawatra of the Thai Rak Thai party, will be the country's new leader.
Whoever wins the election will have to move quickly to restructure the financial sector, says Mike Cearley, emerging markets fund manager at Invesco.
Peter Hames, Far Eastern fund manager at Aberdeen, agrees. He says: "Non-performing loans in the banking sector are still very high and a drag on the economy."
Cearley says Thailand's top three listed banks, Siam Commercial Bank, Bangkok Bank and Thai Farmers Bank, all need a huge cash injection to stay afloat. He adds: "They need at least $1bn each in recapitalisation to meet the current government's minimum capital requirements."
Cearley says both Shinawatra and Chuan are talking about setting up national asset management companies, which could then buy the non-profitable loans from the banks, easing their increasing capital requirements.
Cearley says: "On the basis that the Government pays maybe 40% of the non-profitable loans value and restructures them, it could sell them on again and the cost wouldn't be that bad."
He adds the Government would need to raise sovereign debt to do this.
This would be easier for the Government to do than the banks, as it is more credit-worthy.
Despite being underweight Thailand, Cearley foresees possible short-term growth, which could potentially be sustainable if financial reforms are carried out quickly and smoothly.
He adds 65% of recent company results in Thailand have been positive.
Hames holds 5% of his fund in the region, compared to the MSCI AC Asia Pacific excluding Japan benchmark of 1.5%.
Despite being overweight Thailand he remains cautious, anticipating a probable slowdown in the New Year as uncertainty abounds due to the election, oil prices and the expected US slowdown.
Hames is overweight on a purely stock-specific basis. He says: "There is a lot of good value in Thailand, especially among the medium-sized companies."
Hames says some companies within the electronics sector have performed quite well year to date, as have a number of retail companies. He points to Siam Makro as a good performer, currently at 54.5 baht, up from a first quarter 2000 low of 41.25 baht. The advertising and newspapers industries have also posted above average performance.
Cearley prefers the telecom sector, noting penetration remains low given the scope for growth.
Shin Corp is one stock he is keen on, the owner being the favourite to win the Prime Ministerial battle in the New Year.
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