Brief Thailand: The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished and more

In this briefing:

1. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished
2. Climate Action – School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note
3. Small Cap Diary: Rajthanee Hospital, CAZ
4. Elections, Coups and Constitutions: Thailand’s Reckoning
5. Thai Election 2019: Defeat in Parliament, Victory in Senate

1. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished

• The dollar IS the story
• EUR punished for negative yields
• Chasing Brexit down a rabbit hole
• Gold confounds
• Bitcoin at an interesting juncture

The fact that the dollar has strengthened despite the dovish turn at the Fed this year and the significant fall in US rates and bond yields has confounded many analysts.

2. Climate Action – School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note

On Friday, March 15th, an estimated 1.6 million students in over 120 countries (source: Time magazine) walked out of classrooms and took to streets demanding radical climate action. Climate change activism rarely grabbed headlines or wider public attention as it is doing now. Rising climate activism will continue to train the spotlight on industries/businesses associated with carbon-emission making it increasingly difficult for them to expand capacities or secure funding. Large institutional investors – sovereign funds, pension funds, insurance companies – have begun to incorporate climate risk into investment policy and are limiting exposure to sectors that directly contribute to carbon emissions – primarily coal, crude oil producers and power plants based on them. Expect sector devaluation; active investors may well look beyond juicy near term earnings and dividend yield.

Even as scientists and meteorological organisations keep warning of dire consequences unless concrete action is taken to limit carbon emissions to stall climate change, political establishment/regulators in most countries are in denial while others are doing little more than lip service.  If so, should corporates care? even though businesses are the ones that play a direct role in escalating carbon emissions. With rising consumer awareness and activism, several industries associated with carbon emissions are already facing operational and funding challenges; we believe, it pays for all businesses to be above par on ‘climate action’ – it would be in their own self-interest, not just general good. And do Investors bother? Under the aegis of Climate Action 100+, an investor initiative with 320 signatories having more than USD33 trillion in assets collectively under management, they have been engaging companies on improving governance, curbing emissions and strengthening climate-related financial disclosures. It has listed out Oil & Gas, Mining, Utilities and Auto manufacturers as target sectors. Investors have already been making an impact – by vote or exit. It sure makes logical sense to effect positive change and minimise climate risk when you have a long term investment horizon.

In the detailed note below we

• discuss how rising consumer/investor activism and/or political/regulatory changes are posing challenges to key sectors –Coal, Oil & Gas, Automobiles/Aviation, Consumer goods –  that are associated with carbon emissions. 
• analyse how rising climate activism is negatively impacting growth prospects and valuation of companies in these sectors.
• highlight the opportunities for businesses to capitalise on changing consumer preferences for products that minimise carbon footprint and differentiate themselves by being on the right side of climate action.
• present a quick primer on climate change and lay down the key facts and data on climate change as presented by World Meteorological Organisation, NASA and IPCC. 

3. Small Cap Diary: Rajthanee Hospital, CAZ

We visited two small-cap companies from totally different industries today. These are the key highlights.

• Rajthanee Hospital, a small hospital chain based in Ayuthya, achieved 15.7% revenue growth CAGR since 2016 on the back of its proximity to industrial estates.
• CAZ has seen its backlog double to Bt2.5bn largely due to its good relations with major clients (PTT) and partners (Samsung and other Korean chaebol), which dole out projects in the oil & gas sector to it.
• Internally, CAZ follows a sophisticated cost control method sporting bar codes and GPS to track materials and dedicated cost-control staff.

4. Elections, Coups and Constitutions: Thailand’s Reckoning

Thailand went to the polls for the first time in six years last Sunday. The Election Commission will release results for 94% of the vote this Friday, with full and confirmed results released on 9 May. An elected government will be restored but the game has been rigged by the amended 2017 Constitution which allows the military to appoint the 250-strong Senate.

We asked our long-time Thai political correspondent, Professor Thitinan Pongsudhirak of Chulalongkorn University, to have a look at Thailand’s political history and to give us his views on the likely outcome. Dr. Thitinan forecasts the return of Prayut Chan-Ocha as prime minister but at the head of a very weak government in what looks likely to be a Pheu Thai coalition in the lower house. Thai politics looks set to become fractious, and interesting, once again.

5. Thai Election 2019: Defeat in Parliament, Victory in Senate

With over 90% of the votes counted, the Thaksinite party Peau Thai currently leads with a razor-thin margin of 10 seats, which will be easily overwhelmed by at least 200+ senators who will certainly support the Army faction that appointed them.

• This ensures policy continuity. The Thaksinite lead is simply too small to justify a mass protest and political uncertainty feared by foreign investors. The stock market reacted counter-intuitively by falling, and this seems like a good opportunity to buy from our vantage point.

• The strong showing of newbie party Future Forward, now Thailand’s third largest, should benefit TSC (Thai Steel Cable) on the sentiment level. Thanatorn’s uncle Suriya is part of the pro-Army party, though joining the government bloc may be tricky given Future Forward’s campaign stance.

• The Democrats performed poorly, losing much of their seats in both Bangkok and Southern Thailand (their home base), to Future Forward and Pracharat respectively. However, they may still end up in the government if Future Forward doesn’t pounce on the opportunity.
• Bhumjaithai was the only swing vote party that did well in this election, emerging as number 4. At the moment, they are the most likely party for the pro-Army government, given their friendly and flexible stance prior to the elections. The Party Leader’s family controls STEC.