Drought, Tsunami and problems in South Thailand would normally make any foreign equity investor think twice before investing in Thailand, but fund managers are currently flocking huge capitals to Thailand, attracted by the political stability of the Thai Kingdom and ambitious development plans that are going on.
Prime Minister Thaksin Shinawatra's overwhelming victory in a the latest February parliamentary election and plans of Thailand's Government to push a gigantic infrastructure package through have attracted a massive 1.8 billion US-dollar of foreign equity funds into Thailand in the first 3 months of this year alone.
That is more than the highest annual total of equity funds inflow since the year 1997, according to a Nomura Securities Research report. "Thailand has a fiscal surplus, Thaksin has the mandate and the money to spend," said Bratin Sanyal, who manages 1 billion US-dollar equity fund as head of Asian equity investments for ING Investment Management.
Thaksin Shinawatra, is the only, by the Thai public, elected Prime Minister in Thailand to finish his full four-year term and then return to power again with a historic single-party majority in an Asian country where Parliament used to collapse over coalitions.
Despite the trouble in the South, foreign investors are undeterred. "The problems in South Thailand are more of a domestic concern for the Thais, I don't think these disturbances will easily put off foreign equity investments unless they would escalate in the future to a Middle East scale," said Geoff Lewis, head of investment services at JF Asset Management, which controls more than 57 billion US-dollar of equity assets in Asia.
As for growth, the economic planning agency has cut its 2005 forecast from 6% to 5.3%, as fuel prices rise and exports have slowed down a little, but fund managers say PM Thaksin's infrastructure spending should compensate this loss. "The biggest risk could be the ongoing Oil price climb, but if the newly elected government of Thailand is able to come out with a priming package to get the country going, then the risk will be moderated," said Lim Kok Boon, senior fund manager with Henderson Global Investors, which has 4.4 billion US-dollar of assets in Thailand.
Last month the Government of Thailand raised the price of diesel by 1/5 due to surging world oil prices, a move, Thailand says that will cut its costly subsidy in half, but may push the Thai inflation in 2005 as high as 3.8% from a previous forecast 3.5%.
Cutting fuel subsidies was a priority for the Thai government, which has announced plans to spend up more than 1.5 Trillion Baht (US$ 37.8 billion) on transport, infrastructure and power projects over the coming four years. Some skeptics question if Thailand's economy at 164 billion US$ can finance such an investment but most fund managers are bullish.
"There will be a lot of private investment and co-financing going on," Lewis added. "The debt-to-GDP ratio has gone down enormously in Thailand, so there is possibility for borrowing funds without crowding out investments." Thailand's foreign debt only came to 50.6 billion US$ at the end of 2004 which is about the same size as the foreign debt of Malaysia, which has only an economy that comes to 103 billion US$
Construction companies like Sino-Thai Engineering, Ch Karnchang PCL and Italian Thai will also gain from this Thai spending, but costly raw materials and hard bargaining by the government of Thailand are expected to cut margins in the sector. Those construction companies shares are part of the main stock index of Thailand, which has one of Asia's lowest 2005 price to earnings multiples at 9.2. The index has risen 2.9% so far, which compares favorably with the 2.24% rise on Tokyo's Nikkei.
