Brief Thailand: Prayuth Accomplishes a Clear-Cut Victory, Assuring Stability (If Not Rapid Growth) and more

In this briefing:

1. Prayuth Accomplishes a Clear-Cut Victory, Assuring Stability (If Not Rapid Growth)
2. The Week that Was in ASEAN@Smartkarma – Thailand’s Election, Philippine Banks, and Data Junkies
3. Last Week in GER Research: Navitas, Mindtree, PG&E, Delta Electronics, GDS, Myob, Sigma and Ruhnn
4. Thailand: Elections Are Not Irrelevant; This One Too Pits Faster Growth Vs. Military “Stability”
5. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump

1. Prayuth Accomplishes a Clear-Cut Victory, Assuring Stability (If Not Rapid Growth)

After 18 years, the Thai (military) establishment has finally tamed Thaksin Shinawatra in the 2019 election, the first one since 2001 in which a party linked to Thaksin has not won a plurality.  Since the military coup of 1932, Thailand’s most stable and powerful institution has been the military — preserving order and continuity. In the 20th century, no single party ever had sufficient parliamentary support to govern Thailand on its own; so, even when the military was not directly governing, it was able to decisively influence weak coalitions of civilian parties. That changed in 2001, and parties linked to Thaksin have dominated all elections held since 2001 — but those governments have been brought down by 3 military coups since 2006. 

Albeit aided by a slew of rule-changes aimed at handicapping Pheu Thai and benefitting his own Palang Pracharat party, Prime Minister (and retired General) Prayuth Chan-ocha has now pulled off a peaceful electoral coup. In a sensational upset, Prayuth’s political vehicle (Palang Pracharat) won the nationwide popular vote count — albeit by declaring 6% of the votes cast invalid. Given that the composition of the House is based on proportional representation, Palang Pracharat is likely to be a very close second to Pheu Thai in the number of seats held in the House. (Pheu Thai won 137 of the 350 constituencies, to 97 for Palang Pracharat). Although the Future Forward party led by businessman Thanathorn will be the third-largest party in the House (and will likely align with Pheu Thai), the next two parties (Bumjaithai and Democrat) are likely to support Prayuth. With the support of all 250 Senators, the Prayuth-led coalition will have an overwhelming majority in a joint Senate-House sitting — which is where the Prime Minister is chosen. 

Prayuth will thus go down in Thailand’s history as a military-turned-civilian leader in the pantheon of Phibun (who was PM for 14 years, and the creator of modern Thailand), Sarit (his dynamic successor in the late-1950s) and Prem Tinsulanond (the iconic leader of Thailand in 1980-88 who created the modern Thai economic miracle). While Prayuth’s stewardship of the economy has been uninspiring over the past 5 years, the last two of them were slightly better, with a quickening of real GDP growth to a 4% annual handle. While we expect a period of political instability over the next 6 weeks as the election results are announced and fought over, the ultimate outcome will be a stable government led by Prayuth that will likely complete a decade in office. While growth will be less dynamic than it would be under a Thaksinite government, stability will allow Thai corporates to plan for the medium term (including growing their regional presence, as they have done in the past decade). While we remain cautious about the near-term, we are now moderately positive on Thailand on a 3-6 month view. 

2. The Week that Was in ASEAN@Smartkarma – Thailand’s Election, Philippine Banks, and Data Junkies

Macro Insights

In Thailand: Elections Are Not Irrelevant; This One Too Pits Faster Growth Vs. Military “Stability”, Cross ASEAN Insight provider Prasenjit K. Basu discusses the implications of the result of Thailand’s election, which will likely see the incumbent Prime Minister retain his position, this times as a democratically elected leader (result covered in the discussion stream). 

In Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest, Kevin O’Rourke looks at the most important political and economic developments over the past week and provides his value-added comment. 

In Thailand’s Election – Growth Story Plays Wait and See, Dr. Jim Walker discusses the recent monetary moves by the Bank of Thailand and what the result of the election might mean for growth. 

In Philippines: El Niño’s Comeback – How Bad? , Jun Trinidad looks at the potential impact from the predicted comeback of El Nino in the economy. 

In Asian Credit Monitor: The Pad Thai Election, Warut Promboon looks at the potential impact of the results from the Thai election and the implications for credit in that country. 

Equity Bottom-up Insights

In XL Axiata (EXCL IJ) – The Crown Prince of Data, CrossASEAN Insight Provider Angus Mackintosh circles back to Indonesia’s most direct play on the rising consumption of mobile data, as pricing in that market starts to look more favourable. 

In Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR, commodities specialist Charles Spencer zeros on the potential positive impact from an impending El Nino.

In Philippine National Bank – The Beginning of Recognition, Daniel Tabbush circles back to this leading but unappreciated Philippines lender, where he sees greater appreciation from investors starting to transpire. 

In Tisco – A Bright Bank in a Dim Rate World, Daniel Tabbush revisit one of his top financial picks in Thailand. 

In SUTL: Puteri Harbor Construction Started Last Week, Membership Sales to Follow, Cash = 84% of MktCap. CrossASEAN Insight Provider Nicolas Van Broekhoven circles back to this small-cap marina play and finds it to be one of the cheapest stocks listed on the SGX. 

In Delta Electronics (DELTA TB): Thoughts on the IFA’s Valuation RangeDelta Electronics Thai (DELTA TB), Arun George circles back to this ongoing tender offer, which he recommends minorities should accept. 

In After You Looks Beyond Thailand For Opportunities, our Thai Guru Athaporn Arayasantiparb, CFA writes on After You Pcl (AU TB) and Amata Corp Public (AMATA TB) following recent meetings with management. The meetings with the two companies whose industries could not have been more different. 

Sector and Thematic Insights

In Thai Telecoms: Slowdown in Mobile Business Continues., our comrades and collaborators at New Street Research circle back to the Thai Telco sector post 4Q18 results. 

In Snippets #21: Bremen, TMB Rights Issue, Thai guru Athaporn Arayasantiparb, CFA highlights five developments/news flows/trends and their potential impact on Thai equities over the past week or so. 

In Phillippine Gaming Tug of War Disguises Vibrant Sector Potential for 2019-2020, gaming specialist Howard J Klein zeros in on the Philippines gaming sector, which currently flies under investor’s radar but has a lot of future potentials, and more especially Bloomberry Resorts (BLOOM PM). 

In Singapore Real Deals (Issue 5): The Largest Condominium in Singapore, Anni Kum presents a fortnightly property digest that takes you through the peculiarities of Singapore’s real estate market. In this issue, she looks at the launch of Treasure at Tampines in District 18, the largest condominium in Singapore to-date. (Official launch last weekend). 

3. Last Week in GER Research: Navitas, Mindtree, PG&E, Delta Electronics, GDS, Myob, Sigma and Ruhnn

Below is a recap of the key Event-driven, IPO and placement research produced by the Global Equity Research team. This week we highlight Arun’s analysis on the takeover deals for Navitas Ltd (NVT AU) and Mindtree Ltd (MTCL IN) and the valuation range for Delta Electronics Thai (DELTA TB) . In addition, Arun recommends taking the Gds Holdings (Adr) (GDS US) placement while recommending the deal for MYOB Group Ltd (MYO AU) and contends investors may need to be patient for the rejected Sigma Healthcare (SIG AU) deal. Venkat looks into the bankruptcy arbitrage situation for P G & E Corp (PCG US) and contends PG&E has no equity value due to pending litigation risks. Finally, Arun initiates on the IPO of Chinese e-commerce company Ruhnn Holding Ltd (RUHN US)

Best of luck for the new week – Arun, Venkat and Rickin

4. Thailand: Elections Are Not Irrelevant; This One Too Pits Faster Growth Vs. Military “Stability”

Thailand remains the only Asian economy in which fixed investment spending has yet to return to the pre-AFC peak of 1996. The only years in which GFCF has grown in double-digits since 1996 are in years when “populist” governments were in power (those headed by Thaksin Shinawatra and his sister Yingluck, and in 2010 when Abhisit Vejjajiva implemented similar policies). During the 5 years that the current military junta has run Thailand, GFCF has grown at a meagre annual average rate of 2.13%. So the election is a straight choice between stronger growth (if Pheu Thai wins a plurality, and is able to form a coalition with Future Forward) and anaemic growth under a government led by current PM Prayuth Chan-ocha.  

Having written the election rules to suit himself, PM Prayuth remains in pole position to remain Prime Minister after the election (on Sunday March 24th). Not only are all 250 members of the Senate appointed by the military, a larger share (150 of 500 seats) in the elected House will be determined by proportional representation — and only the other 350 will be allocated to winners of the vote count in each constituency. All this, plus the banishment of Thaksin and Yingluck, is aimed at hamstringing their political party, Pheu Thai, which still leads in all the polls — and which has come out on top of every election since 2001 (when Thaksin’s became the first party to ever win a majority of seats in parliament on its own). Given that a joint sitting of both Senate and House will choose the PM, Prayuth still remains likeliest to remain prime minister.  

We expect that the election will be “won” by Pheu Thai and Thanathorn-led Future Forward — the “red shirt” successors — who will together win 300-320 seats in the House. But this will not suffice to enable them to win a majority in the joint setting of the House and Senate. The “yellow shirt” parties — Democrats (led by Abhisit) and Prayuth’s Palang Pracharat — will together have about 180-200 seats in the House (clearly “losing” the election), but should still command a majority of the joint sitting of House and Senate. If King Vajiralongkorn goes along with this outcome, Thailand is likely to continue to have persistently sluggish growth in 2019 and 2020, with private investment spending remaining especially anaemic. However, the King could choose to intervene in favour of the “winners” of the election, which would prolong the period of political instability, but otherwise generate substantially faster economic growth in the medium term. The upshot, however, is that the election will not immediately alter the pattern of sluggish economic growth that Thailand has been stuck in over the past 5 years. We recommend being Underweight Thailand.  

5. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump

• The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
• The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
• Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
• US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
• Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
• Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
• Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
• Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.