International Investment in Thailand Recent Research Proposal

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However, the Thai government's guidance on growth has been conservative; if we take the World Bank's pre-crisis estimate of 6.2% (Thailand Business News) and factor in Chatikavanij's warning, Thailand's near-term growth potential comes in at a healthy 4.2%.

From a pure value perspective, Thai stocks are already trading at relatively cheap levels (Reuters). The SET is valued at roughly 12 times estimated 2010 earnings, which makes it the second-cheapest market in Asia (behind Pakistan) and significantly undervalued compared to Indonesia (14 times 2010 earnings) or Malaysia (15.7 times 2010 earnings). While it may be time to reconsider our sector weightings in order to take advantage of bargains in Bangkok (and dump stocks that are looking rich or in danger of deteriorating further as the political crisis continues), it would probably not be prudent to move money away from the market entirely.

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The idea of reallocating some or all of the portfolio's assets to Thai bonds as a risk hedge is superficially interesting but ultimately flawed. Thai government bond yields are currently comparable to U.S. Treasury paper of similar duration (Thai Bond Market Association), even though Thailand's sovereign credit is only rated BBB+ (Standard & Poor's). It is not appropriate to expose our shareholders to the added risk that Thailand entails without a correspondingly greater return than what AAA-rated Treasury bonds currently provide.

Moreover, S&P has stated that it will downgrade Thailand's rating if the political situation worsens. As a result, if we are commited to exposure to this vital emerging economy, equities may be relatively risky, but at least carry the chance of greater upside. Presumably our colleagues on the fixed income side can provide better opportunities if greater diversification.....

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