Thailand's stocks, Southeast Asia's worst performers this year, staged their biggest two-day rally this year after a court ruling on May 30 paved the way for a national election. More gains are likely, history shows.
``All of these worries about politics are a great buying opportunity,'' said Doug Barnett, a 51-year-old fund manager who's been investing in Thailand since 1990. His Thai Focused Equity Fund Ltd., a $300 million hedge fund, includes Banpu Pcl, the nation's largest coal miner, and Bank of Ayudhya Pcl, the sixth-largest bank by assets.
Thailand has been ruled by a military-installed government since a Sept. 19 coup ousted Thaksin Shinawatra as premier on charges of corruption. A military-appointed court banned Thaksin's party and acquitted the country's second-largest political group of wrongdoing in last year's election, which was later nullified by a court.
The benchmark SET Index rose an average of 6.4 percent in the three months preceding the past five elections, ending in 1992. It then climbed a further 3.6 percent in the following month, on average. The last time that civilian government returned after a coup, in 1992, the SET rose 17 percent over the four months.
Asia's lowest valuations are also helping draw investors this time. Shares on the SET are valued at an average 10 times next year's earnings, the least among 14 Asia-Pacific markets tracked by Bloomberg. Overseas investors have purchased about 20 billion baht ($571 million) more of Thai shares than they sold since the court ruling.
`Very Cheap'
``Thailand is very cheap now, and it looks like it's worth the risk,'' said Jorry Noeddekaer, who helps manage about $1.5 billion of Asian stocks at New Star Asset Management Ltd. in London. ``I see the market performing pretty well.''
In the past few weeks, he's bought shares of commercial banks, which he declined to name, in the fund's first purchases in five months. New Star sold all its Thai shares in December, when the central bank imposed capital restrictions on overseas investors to curb currency speculation. They were lifted two days later.
The SET rose 4.5 percent in the two trading days following the May 30 ruling. PTT Pcl, the country's biggest energy company and its most valuable, and Siam Cement Pcl, the largest building-material maker, contributed the most to the gain. Both are based in Bangkok. The index closed yesterday at 726.60.
Beaten
Still, benchmarks in Indonesia, Malaysia, the Philippines, Singapore and Vietnam have all beaten the SET this year, setting new highs along the way. The Thai index would need to more than double to reach its 1994 record of 1753.73.
The SET may rise about 33 percent to 1,000 next year because the court's verdict has reduced the risk of owning Thai shares, Poramet Tongbua, head of research at Tisco Securities Ltd., wrote in a June 1 report. The SET hasn't closed at 1,000 since November 1996.
His share recommendations include Kasikornbank Pcl, the country's No. 2 publicly traded lender, and PTT Exploration & Production Pcl, the second-biggest natural gas producer, both in Bangkok.
ABN Amro NV raised its recommendation on Thai shares to ``overweight'' from ``underweight,'' saying an election will restore peace to the country while lower interest rates will boost spending, according to a June 8 report.
The military-appointed Constitutional Tribunal decided not to prevent all major leaders from the country's two largest political groups from seeking office, allaying investor concerns that they would be banned from running in this year's planned December election.
Election Plans
The court acquitted the Democrat Party, the nation's second-largest political group, of violating laws in last year's nullified vote. It dissolved Thai Rak Thai, the party founded by Thaksin, and banned 111 party executives, including Thaksin, from politics.
The government lifted a ban on political parties' campaigning and allowed remaining groups to meet voters, hold meetings and engage in other activities starting June 5.
Prime Minister Surayud Chulanont has pledged to hold a constitutional referendum later this year and have elections on either Dec. 16 or 23.
``Once we get to a definite date, sentiment will pick up,'' said Adithep Vanabriksha, head of Thai equities at Aberdeen Asset Management Co., which oversees $2 billion in Bangkok including Siam Cement and PTT Exploration. ``That will be the single most important event.''
Keith Neruda, head of research at UBS Securities (Thailand) Ltd., isn't convinced now is the time to buy.
``We do not believe the Constitutional Tribunal's ruling has meaningfully lowered political or legal uncertainty in Thailand,'' he said in a June 5 note. ``If anything, it increases the risk that the next general election will be deemed illegitimate and drag out the process even further.''
Risks Remain
About 10,000 people rallied on June 9 in the nation's capital, demanding the resignation of coup leader Sondhi Boonyarataklin, the Bangkok Post reported June 10. Political unrest may escalate should Thaksin return to Thailand to contest a court-appointed committee's decision to freeze his assets, said Sin Beng Ong, an economist at JPMorgan Chase & Co. in Singapore. The SET dropped 2.3 percent yesterday to its lowest since May 25.
Those political concerns may give way to economic success as the government loosens its purse strings and low interest rates encourage spending.
Military leaders who scrapped a Thaksin plan to spend about 1.7 trillion baht on construction projects are starting to free up cash for investment, with the Cabinet having last month approved a 13 billion baht mass-transit railway.
The central bank has lowered its key interest rate by about 1.5 percentage points to 3.5 percent this year, in a bid to boost consumer spending. And the government reported last week Southeast Asia's second-biggest economy expanded 4.3 percent from a year earlier in the first quarter, more than the 3.7 percent growth forecast by economists in a Bloomberg survey.
``As consumers start to feel a bit more optimistic, as the politics starts to becomes less important and some normality becomes more likely to return, there's a lot of potential pent- up demand,'' said Stewart Paterson, joint managing director of Singapore-based Riley Paterson Investment Management, which invests as much as $300 million in Asian equities including Thai stocks. ``There is a very clear electoral cycle.''
Source: Bloomberg
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