Thailand’s army chief pledged to return happiness to the country after seizing power a year ago. Foreign investors aren’t buying it.
Global money managers have sold a net $784 million of Thai equities since Prayuth Chan-Ocha took over in a May 22 coup, the only net outflows from eight Asian stock markets tracked by Bloomberg. While the benchmark SET Index has risen 8.8 percent in the period through yesterday, Morgan Stanley predicts gains won’t last as the outlook for the economy and corporate earnings worsens, while UBS Group AG has cut its position in the nation’s stocks to underweight from neutral.
The government is struggling to revive an economy that grew at its slowest pace in three years in 2014 as government spending on infrastructure and a rebound in tourism fail to counter a slump in exports and domestic demand. Prayuth grabbed power after more than six months of street protests against former Prime Minister Yingluck Shinawatra.
“The military government has provided some relief, but high-frequency data suggest that the recovery remains very weak at best,” said Adrian Zuercher, the Hong Kong-based head of Asia asset allocation at UBS. “International investors have started to withdraw money and wait for more clarification on the key issues,” including fiscal policies and rising household debt, he said.
The SET Index rose 0.5 percent at 10:01 a.m. in Bangkok. The gauge has advanced 1.9 percent this year through yesterday, lagging behind the 8.3 percent gain by the MSCI Emerging Markets Index. The Thai index trades at 20.3 times reported earnings, approaching its highest level in five years, while the MSCI gauge has a multiple of 14.8.
Thailand is the least preferred equity market in Southeast Asia given lofty valuations and ongoing political uncertainty, Morgan Stanley wrote in a report this week, predicting a possible 10 percent decline in the MSCI Thailand Index in dollar terms. The baht is Asia’s worst-performing major currency this quarter with a 2.6 percent drop versus the dollar.
Prayuth has said he’ll return the country to democracy next year if there is no dissent and a new constitution is put in place.
Gross domestic product barely grew last quarter from the previous three months, and the statistics agency lowered its forecasts for GDP expansion and exports even after the central bank cut the interest rate for a second straight meeting last month. Consumer confidence fell in April to its lowest level in almost a year.
Overseas investors have pulled a net $234 million from Thai stocks this year, after net withdrawals of $1.09 billion in 2014 and $6.21 billion in 2013, according to data compiled by Bloomberg. Foreign holdings of Thai equities have dropped to 31 percent of total market value from 34 percent at the end of 2014, Pakorn Peetathawatchai, the Thai stock exchange’s executive vice president, said on May 14.
“Foreign investors are probably disappointed with the economic slowdown and the slow progress in implementing some policies,” the bourse’s President Kesara Manchusree said in an interview in Bangkok on Wednesday. Investors will return when they see increased government spending on infrastructure revive growth, she said.
The prime minister said Thursday he plans to increase spending on investment to a fifth of total expenditure, a level last seen in the fiscal years 2002 through 2009.
The government’s intention to boost spending sounds impressive but execution of budgeted investment plan has historically been “poor,” BNP Paribas SA economist Philip McNicholas wrote in a report this week. “Long implementation lags compound the injury to Thailand’s investment appeal by simultaneously hampering economic recovery and undermining investors’ perception of policy credibility.”
Profits of listed companies fell 11.3 percent last year, the first decline since the 2008 global financial crisis, the stock exchange said on March 6. About 53 percent of companies that reported earnings in the first quarter missed analysts’ estimates, according to data compiled by Bloomberg.
“There is little hope for any big stimulus measures from the Thai government, which has made it very clear that it’s no fan of populist policies,” Kasem Prunratanamala, head of research at CIMB Securities (Thailand) Co. said by phone from Bangkok. “Without state support, the outlook for the economy and corporates will remain dim.”