Monday, February 27, 2012

Thailand second to China as top investor market - Independent Online

During 10 turbulent years in Thailand, Kittiratt Na-Ranong tackled jobs ranging from president of the stock exchange to manager of the national soccer team, an underperforming outfit nicknamed the War Elephants.

Now, Kittiratt, 54, has taken on a task with significant implications for fund managers such as Templeton Emerging Markets Group executive chairman Mark Mobius, for market-leading companies such as Intel and Toyota Motor and for consumers of the world’s most important staple food, rice.

Kittiratt said as deputy prime minister and finance minister his task was to convince investors the government could build defences to prevent the recurrence of floods that last year inundated thousands of factories critical to global supply chains as well as a swath of the paddies that supply 29 percent of international rice shipments.

As the waters slowly receded, they laid bare this Southeast Asian country’s extraordinary economic importance to the rest of the world.

Thailand is second only to China among the world’s best emerging markets for investors. The ranking looks at a series of measures such as market transparency and prospects for growth over the next four years.

Thailand’s tiny, $303 billion (R2.3 trillion) stock market as of February 22, accounted for just 0.6 percent of the market value of world equities. As of 2011, its gross domestic product per capita was a mere $5 281 less than half that of Mexico’s. The country is prone to disruptions, ranging from coups d’├ętat and civil strife to tsunamis and floods.

Yet Thailand has developed such successful electronics and auto industries it now produces from 35 to 40 percent of all computer hard-disc drives and, in 2010, built more light trucks than Japan.

In agriculture, besides being the world’s biggest rice exporter, Thailand ranks number one in rubber and number two in sugar. The country that brands itself the Land of Smiles has consistently remained one of the world’s top 20 tourism destinations, attracting more visitors in 2010 than Greece.

Even as the government of Prime Minister Yingluck Shinawatra begins spending a promised 480bn baht (R121bn) on dykes and post-flood reconstruction, it’s working on a longer-term goal – the transformation of an economy heavily dependent on cheap-labour exports into a more consumption-driven model.

Its populist strategy is to give 67 million Thais more spending power by raising urban wages by 40 percent to about $10 a day and guaranteeing farmers they will receive a price for their rice that’s as much as 44 percent above the market rate. Such government initiatives, on top of the chaos caused by the deluge, could inflict a big extra cost on Thai-based manufacturers, rice exporters and their customers worldwide.

Hit by floods

While Kittiratt predicted Thailand’s economy would grow 7 percent this year, Singapore-based Credit Suisse economist Santitarn Sathirathai said the rate might be only 3 or 4 percent. The Thai rice price surged 28 percent from July to mid-November, when it reached a three-year high of $663 a ton.

Templeton’s Mobius is making a big bet on the government’s strategy paying off – and on the Thai economy. Thai stocks comprised 21 percent of the $16.9bn Templeton Asian Growth Fund as of January 31 – second only to Chinese stocks.

In the fourth quarter of 2011, despite the floods, Thailand’s SET index jumped 12 percent to become the world’s fourth-best performer. It has risen a further 11 percent this year as of February 22.

As Kittiratt and Yingluck, Thailand’s first female prime minister, implement their reconstruction programme, Thai companies like cement makers and banks will cash in on a construction-led boom this year, said Aberdeen Asset Management, Scotland’s biggest fund manager.

From 1971 to 2010, Thailand’s annual GDP growth averaged 6 percent despite coups and financial crises.

As buoyant as the Thai economy is, the human and economic cost of last year’s floods has been immense.

About 800 people died, economic growth in 2011 probably plunged to 0.1 percent from a forecast 4 percent, and total damage to the $346bn economy could reach $46bn, the government estimated.

Spectacular comebacks

In 1998, in the wake of the Asian financial crisis, its economy contracted 10.5 percent before rebounding to grow 4.4 percent the next year. Since then, the country has staged spectacular comebacks from a 2004 tsunami and 2006 coup – and the debilitating political protests that followed.

While Kittiratt said recent flood-related damage would be short-term, Thailand will always be threatened by inundation.

In July, torrential rains started falling in northern Thailand.

An area larger than Greece became a world of water. Factories operated by companies such as Honda Motor and Canon were swamped. Even companies that stayed dry, like Toyota, couldn’t escape the impact as their parts makers went under.

Although many companies predicted 2012 production would bounce back, the effect on their bottom lines was not easily erased.

On December 12, Intel, the world’s biggest chipmaker, reduced its fourth-quarter revenue forecast by $1bn. On January 10, Ford said its Asia-Pacific and Africa operations would post a loss.

Biggest investor

Japanese companies fared even worse. In December, Toyota said the Thai floods would cost it $1.53bn as the car maker slashed its profit forecast for the year ending in March by 54 percent. But Toyota chief executive Akio Toyoda said in November the company didn’t consider reducing investment in Thailand.

Selling the plan

In January, the government announced its plan. It approved 350 billion baht for flood defences

. Kittiratt, the man selling the plan, said

in dealing with the floods, there’s no room for failure.

Survival is a historical challenge for Thai governments. Since 1946, Thailand has been rocked by 15 successful or attempted coups and 28 changes of prime minister

The last coup, in 2006, overthrew the elected government of Thaksin Shinawatra, Yingluck’s brother. Tensions culminated in 2010 in violent street protests in which 92 people died. Yingluck, a 44-year-old rookie politician, assumed office in August.

Any new bout of revolving-door leadership could threaten flood-prevention efforts, Aberdeen’s Adithep said. A bigger risk to Thailand’s stability could be the royal succession. King Bhumibol is the world’s longest-reigning monarch, having ascended the lotus throne in 1946. As military and civilian strongmen came and went, Bhumibol remained Thailand’s sole stabilising presence..

By comparison, his heir, twice- divorced Crown Prince Maha Vajiralongkorn, 59, has had to fight off unwelcome publicity about his personal life. A more immediate concern is the performance of the present government.

Yingluck, who has a master’s degree in public administration from Kentucky State University, entered politics last year after a career as an executive in her family’s companies.

Abhisit Vejjajiva, opposition Democrat party leader and a former prime minister, questioned Yingluck’s qualifications as a head of government. But Jetro’s Iuchi said his meetings with Yingluck gave him confidence in her abilities. Yingluck declined to be interviewed.

In 2010, Thailand was by far the biggest rice exporter, shipping 9 million tons. In the same period, its nearest rival, Vietnam, shipped 6.7 million tons.

Overtaken by Vietnam

At a waterfront warehouse on the Chao Phraya River, veteran rice exporter Chookiat Ophaswongse predicted that in 2012, Thailand’s rice exports would plunge by 30 percent.

Apart from flood disruptions, the government’s willingness to pay above-market rates to farmers is making Thai rice noncompetitive, said Chookiat, 57.

As of February 22, the price of Thai rice, an Asian benchmark, had fallen about 15 percent from its November peak.

Investor Marc Faber is more optimistic. He said he didn’t expect the floods to have any impact on Thailand’s long-term prospects.

In 2000, Swiss-born Faber, who oversees $300m at Hong Kong-based Marc Faber, moved his family home to Chiang Mai, a 1 000-year-old walled city 700km north of Bangkok.

In October, floods seeped into the house he built on the banks of the Ping River. Faber, 66, publisher of the Gloom, Boom & Doom Report, said he’d continue to invest in Thailand.

Similarly, US-born Bill Heinecke, who owns hotels managed by Four Seasons Hotels and Marriott International in Thailand as well as his own Anantara-brand resorts, has made a bigger bet on the country than most.

Heinecke, 62, gave up his US citizenship in 1992 to take Thai nationality. Since then, his Minor International has been rattled by the Asian financial crisis, the tsunami and a political protest in 2007 that closed Bangkok’s two airports for a week, stranding 400 000 travellers.

During the worst times, Heinecke’s hotel occupancy rates plunged to less than 20 percent, he said. And yet his business has grown from a single hotel to 70 resorts, 1 200 restaurants and 200 retail stores.

Shares of Minor International, in which King Bhumibol owns a 2.2 percent stake, rose more than 12-fold in the 10 years ended on February 22 – five times the increase in the benchmark index.

In November, Heinecke went ahead with the opening of his latest, riverside Anantara hotel. This was at the height of the floods, with the swollen Chao Phraya reaching the edge of the hotel’s lawns.

“We weren’t going to change the plan,” Heinecke says. “Thailand has a habit of bouncing back.” – Bloomberg


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