Yingluck Shinawatra

Time is still on the side of the Thai bull run

Timothy Teo says even after its gains, the Thai market is still cheap on a price-earnings basis compared to many other markets in the region

PUBLISHED : Monday, 20 May, 2013, 12:00am
UPDATED : Monday, 20 May, 2013, 4:18am

Timothy Teo runs a Thai equity fund that is one of the five best performing equity funds sold in Hong Kong. Indeed, four of the top five equity funds sold in Hong Kong are focused on Thai stocks, according to Lipper, a data firm.

The Amundi fund rose 19.7 per cent in the first three months of the year, and it more than doubled in value in the past three years.

And yet, the fund is experiencing cash outflows - it is down by about a quarter in size since the start of the year.

Teo says investors have been locking in their gains.

"It's a natural way of realising some profit. If you look at the one-year performance, the fund is up 38 per cent, and some of our investors have varying investment horizons" he says.

But the fall opens up the question of whether the Thai equities rally has run its course (the benchmark SET Index is close to passing its historic high) or whether there is more room to go. This is the nail-biting query that nags at every investor sitting on a hot asset that has performed well for a long time. Anyone in that situation would be tempted to cash in, but only at the risk of losing out on potentially bigger gains down the line.

Teo's pitch, of course, is that there is life left in the great Thai equity bull run.

In the near term, he expects the central bank to cut interest rates, which should stimulate the share market. "It looks like the central bank will cut rates, my guess is by 25 to 50 basis points [0.25 to 0.5 percentage point], and that would be a positive signal to the domestic stocks like banks and property," he says.

But the long-term story is about infrastructure and political stability.

Everyone agrees Thailand's turning point came with the election of Yingluck Shinawatra, as prime minister, in 2011. The event stabilised the country after a terrible 2010, when Thailand experienced political protests that divided the country and shut down Bangkok, only to be followed by the worst flooding in 50 years.

"She has a great personality. She is tremendously well liked and she gets along with the army and monarchy. That gave the base for stabilisation that we see now," Teo says.

Yingluck has the popularity and clout to propose an audacious spending bill of 2.2 trillion baht (HK$573 billion) for infrastructure projects over the next seven years, including a high-speed railway linking Bangkok to Kunming, China. Teo says the bill is before the parliament now.

"The golden question, as with the Chinese high-speed rail, is it a white elephant or national trophy? My opinion is that a piece of the rail project will get knocked down due to the fact that it's very expensive, and even in China there is not enough critical mass for people to move along those lines at the moment," he says.

He predicts Thai lawmakers will only approve about half the spending bill, "but you are still talking about double digits billions of dollars ploughed into the market".

The direct beneficiaries would be Thai property firms, which have been busy buying up property at the hubs for the proposed links, and banks, which would have heavy demand for new loans connected to all the construction.

Thailand is also a beneficiary of Japanese investment. The carmakers in particular like the country, which makes many of the world's Toyota Camrys and Corollas. After the 2011 tsunami, Japanese carmakers learned the lesson of diversifying their production base. "We are seeing massive purchases of industrial land plots [in Thailand] because Toyota says it wants to expand more, to diversify," Teo says.

The infrastructure story is promising and plausible, but investors may wonder if it is already priced in, as it is quite well known. But even after all its gains, the Thai market is cheap on a price-earnings ratio, Teo says.

The market trades at about 12 to 13 times projected 2014 earnings, which is cheaper than regional markets such as Singapore, Malaysia, Philippines and Indonesia. Teo says Thailand still looks cheap, "so hang on".