Mobius Says Thai Economy at Risk; Stocks Resume Trade

By Chen Shiyin and Shanthy Nambiar

April 16 (Bloomberg) -- Mark Mobius, whose Templeton Asset Management Ltd. has invested in Thailand for two decades, says the nation’s political turmoil poses a risk to Southeast Asia’s second-largest economy.

“In the near and medium term, Thailand will need to restore consumer confidence and revive investment,” Mobius, who helps oversee $20 billion in emerging-market assets at San Mateo, California-based Templeton, said in an e-mail response to questions. “Failure to do so due to these political conflicts could present a risk to Thailand’s growth.”

Thailand’s stock market resumes trading today after a three-day holiday marred by street clashes and weekend demonstrations that forced the cancellation of the Association of Southeast Asian Nations summit in the resort town of Pattaya on April 10. The protests left two dead and 123 injured.

The benchmark SET index has gained 0.9 percent in 2009, lagging the 13.9 percent increase in MSCI’s developing-nation index. The SET tumbled 48 percent last year, the steepest drop since 1997, when the devaluation of Thailand’s baht triggered an economic crisis in Asia. The index trades for 8.28 times its companies’ projected earnings for 2009, tied with Pakistan’s Karachi Stock Exchange 100 Index for the lowest valuation among equity benchmark gauges in Asia tracked by Bloomberg.

Abhisit

The demonstrations have dealt a blow to Prime Minister Abhisit Vejjajiva, 44, who called off the summit after so-called Red Shirt protesters stormed the meeting venue.

The group supports exiled former Premier Thaksin Shinawatra and says Abhisit came to power illegitimately in December. Opponents of Thaksin, in exile to avoid a two-year jail sentence for corruption, seized airports in the country last year.

The past week of protests forced Abhisit to declare emergency rule April 12 after he failed to curb demonstrations, which have since subsided.

“The current political situation means that less foreigners will invest in the country and that portfolio managers may actually be sellers of equity,” investor Marc Faber, who publishes the Gloom, Boom and Doom report, said in an April 13 interview. “The two parties will not agree on anything for a long time to come and that has a negative impact on business and in particular tourism.”

The country relies on visitors for about 12 percent of its economy, according to the tourism authority.

Tourism Stocks

Minor International Pcl, the Bangkok-based owner of hotels including the JW Marriott Phuket Resort & Spa and Four Seasons in the capital city, was cut to “hold” from “buy” at Deutsche Bank AG yesterday. National carrier Thai Airways International Pcl, also based in Bangkok, was reduced to “sell” from “hold” by the bank on April 9.

“Lingering political uncertainty” may weigh on Thailand’s bank stocks, with slowing spending and economic growth increasing the risks of non-performing loans, Cazenove Asia Ltd. analysts Seeping Tan and Xiushi Cai said in an April 15 report. They advised investors to sell shares of Kasikornbank Pcl and Krung Thai Bank Pcl, both based in Bangkok.

Abhisit today pledged to work closely with the tourism industry, saying that it is an important part of the nation’s economy. He’s seeking agreement on political reforms and plans to call for elections when there is stability, he added in a Bloomberg Television interview.

Consumer confidence fell in March to the lowest level in more than seven years, the University of the Thai Chamber of Commerce said on April 9. Overseas sales, which make up 70 percent of Thailand’s gross domestic product, also dropped for four straight months on weaker demand for Asia’s electronics.

Economic Outlook

Thai Finance Minister Korn Chatikavanij said April 14 the protests were driving off tourists and investors, deepening the worst recession since the Asian financial crisis. The government will lower its forecast for a 3 percent economic contraction this year, he said in a Bloomberg Television interview in Bangkok.

“Even if this comes to a quick resolution, the damage has more of less been done in terms of discouraging investment,” said Martin Hohensee, the Singapore-based head of Asia fixed- income research at Deutsche Bank. “It’s obviously going to be bad for the baht because of a loss from tourism revenues.”

Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have said this week they may lower the nation’s foreign- currency debt ratings as continued political instability hurts tourism revenue and spurs capital outflows.

Baht’s Drop

The baht has lost 1.3 percent in the past three months, the second-largest drop among 10 Asian currencies, excluding the Japanese yen. The currency, which traded at 35.38 against the dollar, may retreat to 36 by the end of this quarter as the economy weakens, Nizam Idris, UBS AG’s Singapore-based currency strategist, said yesterday.

Thailand’s natural resources, exports and domestic economy may help the nation overcome the political conflicts, Templeton’s Mobius said. The 21 uprisings since 1932 also mean the nation can cope with political changes, he said.

“As long as the nation’s current monarchy system remains stable, we are optimistic that eventually a resolution will be reached,” Mobius said. “We remain positive with Thailand’s longer-term outlook and fundamentals.”

For now, the nation remains in a state of emergency and protesters are vowing to keep seeking the ouster of Abhisit.

“With no end in sight, the ongoing political situation will weigh on investor sentiment,” said Daphne Roth, the Singapore-based head of Asia equity research at ABN Amro Private Bank, which manages $27 billion of Asian assets. “As markets recover, Thailand will be marginalized.”

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Shanthy Nambiar in Bangkok at snambiar1@bloomberg.net.