Daily Thailand: Oil Prices Are Up. Which Stock Benefits? and more

In this briefing:

1. Oil Prices Are Up. Which Stock Benefits?
2. Debt Ratios Do Matter
3. Much Ado About Credit
4. Political Pit Stop (January): Election Delay!
5. Ten Years On – Asia’s Time Is Coming, Don’t Miss The Boat

1. Oil Prices Are Up. Which Stock Benefits?

Oil prices shot back up to US$60/bbl levels in 2019. ‘Experts’ claim it has to do with lower US inventories, but we believe the truth is murkier than that. Instead of dwelling on the dynamics, let’s focus on which stocks benefits when the pendulum swings the other way.

• Near-term: PTTEP is the most direct beneficiary of higher oil prices. The crude they dig, rig, or suck out of the Earth immediately appreciates in value, and so does sentiments for their stock. It may also impact monetary policies, raising interest rates and benefiting banks.
• Medium-term, we expect people to focus on substitutes. Alternative energy providers like Bangchak could see improvement in volumes as their product becomes more competitive.
• Longer term, people would be more willing to switch to electric cars, benefiting both chargers (think EA) and coal (Banpu….someone still needs to generate electricity).
• There could also be lifestyle changes, which means condos closer to offices become more popular as a means to save on transport cost. Think AP, Sansiri, and BTS.

2. Debt Ratios Do Matter

Monetary diarrhoea has inflated the debt structure.

The death of the Bretton Woods monetary system in 1971 paved the way for unbridled money printing. The resulting Great Inflation inflicted huge negative real returns on bondholders and stockholders until 1982. Thereafter, many countries, especially EMs, linked their exchange rates to the dollar, resulting in the fastest ever-growth in global foreign exchange reserves. In addition, central bank puts and then extraordinary fiscal and monetary policies turned it into the most virulent asset bubble in history, despite monetary mayhem, exemplified by numerous banking crises and three big stock market drawdowns. 

3. Much Ado About Credit

• Global financing conditions could tighten further
• Credit demand is deteriorating; credit risks are rising; Eurodollar costs are edging higher
• A de-escalation in trade tensions and a Fed pause could ease the pain
• Will Fed recently turning more dovish (possible shift to slower QT & Fed rate cut in 2019?) + concomitant USD drift provide sufficient respite to put a floor under risk assets?

4. Political Pit Stop (January): Election Delay!

The regime announced that elections will be delayed from the seemingly ‘rock solid’ date of Feb 24, 2019 as there are concerns it would interfere with the coronation ceremony in early May. While the other political parties (Dems, Thaksinites) are generally understanding, there is a group of pro-democracy group that has marched out to protest and demand that the regime stick to the old timeline. Apart from this, there are some observations regarding:

• Short tenure. The Dems pointed out that given a possible Parliamentary minority (despite Senate majority), the Army faction’s new government could find itself unstable, something which the Army faction itself has not denied. Perhaps, the next government won’t last four years like this one.
• Differences and similarities in policies. From our standpoint, almost all the three major factions adhere to populist policies, such as straightforward money handouts. However, the Army faction has some advantages such as hotlines, which assume they stick to power for a while.
• Greater potential for violence. The protest against election delays has dragged on for two weeks, increasing the risk of armed conflict and instability.

5. Ten Years On – Asia’s Time Is Coming, Don’t Miss The Boat

We noted in   Ten Years On – Asia Outperforms Advanced Economies Asia’s economies and companies have outperformed advanced country peers in the ten years to 2017.  Growing by 6.8%, real, through the crisis the region is 188% larger in US dollar terms while US dollar per capita incomes 170% higher compared with 2007. In this note we argue even though Asian stock markets have underperformed since 2010 and the bulk of global capital flows have gone to advanced countries, Asia’s time is coming. Valuations are cheap. Growth fundamentals strong. There are few external or internal imbalances. Macroeconomic management has been better than in advanced economies and the scope to ease policy to ward off headwinds in 2019 is greater. China has already started.