In this briefing:
- Thailand: Elections Are Not Irrelevant; This One Too Pits Faster Growth Vs. Military “Stability”
- Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump
- RRG Weekly – Fed Highlights Headwinds – Greece Greases Growth – Thai Election Sun Too Close to Call
- Snippets #21: Bremain, TMB Rights Issue
- Tisco – A Bright Bank in a Dim Rate World
1. 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.
2. 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.
3. RRG Weekly – Fed Highlights Headwinds – Greece Greases Growth – Thai Election Sun Too Close to Call
- US: Fed Sees Tailwinds from Global Growth Shifting to Headwinds from China and Europe.
- Greece: Growth supported by ‘Golden Visa’ (5-year visa for investing 250,000 Euro) and strong tourism arrivals. 2.3% GDP in 2020.
- Thailand: Sunday election between Shinawatra-linked Pheu Thai Party and military backed Palang Pracharat Party. Too close to call.
- Brazil: Former Brazilian President Michel Temer has been arrested in São Paulo as part of the Car Wash corruption investigation. Brazil stocks fell on the news.
4. Snippets #21: Bremain, TMB Rights Issue
These are the five developments/news flows/trends and their potential impact on Thai equities you should be aware of in recent weeks:
- Reversing Brexit. A special report highlighting the possible reversal of Brexit should have limited impact on Thai equities, though a few names like SSI, Thai Union, and Minor do float up on the screen.
- TMB announces a 5 for 1 rights issue at Bt2.07/sh, which could raise US$570m of new capital for their acquisition of Thanchart and imply a 65-35 split of ownership between the two banks.
- Politically motivated wage hike. Some of the political campaigns by smaller parties are even more populist than the major parties, implying wage increases between 10-30% from current levels. This could really destabilize Thailand’s long-term prospects as an investment base.
- Italian-Thai Chairman thrown into prison. Premchai Karnasutra, who killed one of Thailand’s last 9 black leopards, is sentenced to 16 months in jail. Share prices actually rose!
- Bangkok’s third airport! The Navy is putting up the UTaPao airport construction up for bid. Front runners include the CP-led consortium, which includes ITD, but contenders include the BTS-STEC consortium and another smaller one.
5. Tisco – A Bright Bank in a Dim Rate World
The Fed’s comments may be a surprise to many, but we hope not to our readers. Granular US bank data has indicated for some time, that rising rates were more driven by policy than by demand. As the world now braces for rate cuts and slower growth, there remain a handful of small banks in Asia Pacific that offer respite. Thailand’s Tisco Financial Group (TISCO TB) ranks as having one of the highest dividend yields in Asia Pacific at 7.8%. Where Tisco remains small, growth prospects are far better than for mainstream banks Bangkok Bank Public (BBL TB), Siam Commercial Bank Pub Co (SCB TB) and Kasikornbank PCL (KBANK TB). Additionally, Tisco has seen a steady rise in profitability with ROA now at 2.31% from 1.84% two years ago and from 1.30% in 2014. This profile of rising and high returns, while still small in a local context, and with one of the best dividend yields anywhere, make it a bright spot in a low rate world.
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