To date, neither foreign investors nor credit rating agencies have been too deeply concerned about Thailand’s on-and-off political unrest, albeit that last year, things got so heated that the main airport in the Thai capital, Bangkok, was shut down.
This year again, political noise has been loud but not loud enough for some investors such as Scott Klimo, director of research for Saturna Capital’s Amana Funds and deputy portfolio manager of the Amana Developing World Fund, who hasn’t cut down on his Thai positions yet. However, it has been loud enough to dissuade him from committing more to the country at present.
“I’m really not in a rush to buy anything in Thailand right now,” Klimo said. “I’m not selling anything now, but I’m not buying anything either.”
Like many investors, Klimo is in a wait-and-see mode with respect to Thailand and the current political upheaval, which in essence, is based on reasons that date back several years and that have spurred political unrest since 2006: a deep dissatisfaction and lack of trust for Thailand’s ex-prime minister, Thaksin Shinawatra, who has been living in exile since 2008 just before being sentenced to imprisonment for abuse of power.
Thaksin’s sister, current prime minister Yingluck Shinawatra, won a landslide victory in 2011, but opponents have not been happy with the fact that she’s continued the populist policies started by her brother, which they allege are a waste of taxpayer money and amount to little more than vote-garnering, and because they believe that Thaksin is exerting his control over Yingluck’s administration from afar.
Recently, Yingluck announced that despite the reforms opposition protestors are asking for, Thailand would have another general election in February. She has already begun campaigning in Thaksin’s stronghold of northeast Thailand, a rural and populous part of the country that has benefited from governmental subsidies. The election could prove decisive, not least because in many ways, Thailand is at a crossroads.
The Thai king, Bhumibol Adulyadej, who is revered to the point of deification and has always played an inconspicuous role in Thai politics, is old and frail. His son, Maha Vajiralongkorn, is not regarded with the same level of respect.
Experts believe that many in the opposition, particularly the wealthy elite of Bangkok that are the Shinawatras’ greatest critics, see an end to the monarchy as it has always been, and that it will be replaced with untrustworthy, populist politicians. Still, Thaksin is not the first politician to have enacted populist policies and he won’t be the last, Klimo said. And Yingluck’s government was democratically elected, he says, and there’s a strong chance that her party will win February’s elections as well, which could then prove problematic for Thailand and perhaps lead to greater political unrest.
As such, this is a decisive moment for Thailand and one that investors will be carefully monitoring in tandem with the uncertainty associated with the impending end of the U.S. Federal Reserve’s quantitative easing program.
According to Fitch Ratings, Thailand’s continual political volatility has, to a certain degree, already been factored into the country’s triple-B rating.
“It would take a major impact on growth or investor confidence to trigger negative rating action, which Fitch does not expect to happen,” the rating agency stated in a statement issued at the end of November.
Despite the recurrent political unrest in the country and the downturn and volatility in the global markets, Thailand’s growth fundamentals have held up well, Fitch said, escaping even any severe impact from the massive floods that hit the country in 2011. GDP growth has averaged around 3% year-on-year from 2008 to 2012, and Thailand’s financial fundamentals have also remained resilient.
“Previous episodes of political upheavals in recent years did not result in discernible outflows of domestic- or foreign-owned capital, nor did they widen sovereign credit spreads to the extent of hurting government debt dynamics,” according to Fitch.
Although it’s difficult to say what will finally transpire and whether this time around, the outcome of political unrest will be different in Thailand, Fitch believes it remains difficult to conceive of an escalation in ongoing disturbances to a scale where they pose a clear and present danger to the country’s overall growth and financial stability.
According to Klimo, Thailand offers a broad range of attractive sectors and companies to invest in. He has invested in companies that support the growth of the domestic economy, including telecommunication companies, as well as in companies that cater to overseas customers (Thailand is one of the world’s most popular tourist destinations) such as hospitals, which offer their services to the many foreigners that both visit and live in Thailand.