Although the recent coup d’etat that took place in Thailand had no material impact on financial markets, investors are nevertheless watching the situation closely, hoping that this time, too, Thailand will quickly get back on track for longer-term stability.
Thailand is no stranger to coups: This latest is the 12th one since the 1930s (not counting seven attempted coups), and yet the Thai stock market and the Thai currency barely reacted at all to the military takeover, said Aaron Visse, who manages the Forward Global Infrastructure Fund, which invests in Thailand.
That’s partly because no coup thus far has derailed the Thai economy in any way, Visse said, and this time around, investors are just relieved to see some stability in Thailand after several months of widespread protests and deep political tension.
“In the short-term, this turn of events is positive for bringing about some stability, and hopefully they can get back on track quickly for the longer-term,” Visse said.
All the same, investors have been watching Thailand and the unrest on the streets of Bangkok, the Thai capital, and elsewhere in the country in the months leading up to the coup had increased their caution vis-à-vis Thailand, said Rajeev De Mello, head of Asian fixed income at Schroders in Singapore.
Many trimmed their exposure to Thailand but now, “because positions are small, there is no rush for an exit,” De Mello said.
Investors aren’t especially worried about the situation because the Thai economy, which attracts a large amount of foreign direct investment and rakes in revenues from tourism, is in good shape continuing to give them confidence.
“Imports have declined and exports are stable, so the trade position has moved back into a surplus, which is supportive for the currency,” De Mello said. “Thailand also has $160 billion in foreign currency reserves, which gives policy makers the credibility to counter large currency movements.”
Thailand is also a successful exporter and inflation has remained low. The Thai Central Bank is a very credible institution, De Mello said, and government bonds have done very well, returning 3.5% year-to-date, which is the third highest after Indonesia and India. Although the economy had experienced some setback as a result of the political tension, “bonds are buoyed by the weak growth, low inflation, low policy rates and lower level of government issuance,” he said.
Nevertheless, investors are clearly in a wait-and-see-mode, even though the key leaders on both sides of the Thai conflict – those who support the government of deposed premier Yingluck Shinawatra (who has been detained by the military) as well as the opposition – are viewed as pro-economy. Thailand is currently under martial law and that means there are restrictions on protesters as well as on media and social media. More than 100 people, including Shinawatra, have been detained by the military in unknown locations.
“My base case is that this low intensity conflict between the two groups will remain but there is a risk that more extreme elements get frustrated,” DeMello said.
The tensions that brought on the military coup have been going on since November 2013 and actually started long before then. Government protests were aimed at the Shinawatra regime and the influence that Yingluck’s brother, former Thai prime minister, Thaksin Shinawatra (now in living in self-imposed exile in Dubai) has allegedly exerted upon Thai politics. But many believe that the underlying reason for the tensions have more to do with the future of the Thai monarchy.
Thailand’s much loved king, Bhumibol Adulyadej, is now 86 and his son, Crown Prince Vajralongkorn is not held in the same high esteem. Anti-government protesters have repeatedly accused the populist Thaksin governments of attempting to undermine the king, while pro-government supporters believe certain political elites in the opposition have ridden on the king’s coat tails to further their own interests. The Thai king is a major force in the country and controls stakes in two large Thai companies.
But the heart of the Thai crisis is the stark divide between the urban and the rural, between the wealthy and the poor. And there’s a strong need for reforms to try and remedy this gap, said Visse, before Thailand can move forward.
“Much of what’s going on is internal to Thailand but in the long-term, instability isn’t good for the economy, as it hurts both the private and public sector spending,” he said. “Hopefully, they can get back on track for the longer-term otherwise the currency could certainly weaken and there could be a potential for a sovereign downgrade.”
Eventually, there will be elections in Thailand but before then, political reform is key, De Mello said.
“New elections without reforms will lead to a government similar to the outgoing one,” he said. “However, the big question is whether there will be significant reforms before the elections and if so, how will the constitution be changed without proper representation from all sides.”