Three months of political turmoil in Thailand is starting to benefit neighbouring economies, as fund managers pull money from the country, long-term investments are reconsidered and tourists avoid Bangkok.
Foreign investors have withdrawn US$3 billion from Thai stocks since protests began Oct 31, exchange data show. They have put $190 million into Indonesian shares in 2014 even after the Jakarta Composite index fell 3.9% in two days through Jan 27 amid an emerging-market selloff.
Thailand has fared relatively worse than Southeast Asian neighbours as global investors shift money from emerging markets amid the US Federal Reserve’s plan to cut stimulus. Thai Prime Minister Yingluck Shinawatra declared a state of emergency in Bangkok on Jan 22 after protests aimed at toppling her intensified, and the government cut its 2014 growth forecast twice in a month. Long-term investors may consider countries including Indonesia and Vietnam because of the unrest, Toyota Motor Corp. Thailand President Kyoichi Tanada said last week.
"The rotation from Thailand to Indonesia makes sense as we would expect Indonesia to relatively outperform," Mixo Das, an Asia ex-Japan equity strategist at Nomura Holdings Inc. in Hong Kong, said in an e-mail interview yesterday. "Thai growth fundamentals will be much weaker given a lack of investment and ongoing political uncertainty weighing on investor sentiment," he said, adding that he would use the opportunity from a relief rally in Thai stocks to shift funds to other markets.
Growth slows
Thailand's Finance Ministry cut its 2014 growth forecast to 3.1% on Jan. 16, after lowering it to 4% from 5.1% on Dec 26. That compares with estimates of 5.4% expansion in Indonesia, 5 percent in Malaysia and 6.4% in the Philippines, based on Bloomberg surveys of economists.
Thai shares saw the biggest withdrawals by overseas investors among Southeast Asia's emerging markets on Jan 27 as slowing growth in China, a devaluation of Argentina's peso and the prospect of further reductions in US stimulus spurred outflows from developing-nation assets.
Foreign funds pulled $102 million from Thai stocks, $80 million from Indonesia and $34 million from the Philippines, exchange data show. Figures from Malaysia were unavailable.
Asian stocks rallied on Wednesday after Turkey more than doubled interest rates to stem capital outflows. The JCI led regional gains, advancing 1.3% as of 10.03am in Jakarta, according to data compiled by Bloomberg. Thailand's SET gauge rose 0.3%.
Bond flows
Indonesia's benchmark share gauge will probably rally as much as 20% by year-end as a weak rupiah boosts exports and election spending supports consumer and media companies, Alvin Pattisahusiwa, who oversees $3.3 billion as chief investment officer at PT Manulife Asset Management Indonesia, said in an interview in Jakarta yesterday. The country will vote for a new legislature in April and a president in July. The rupiah fell 21% last year, prices from local banks show.
Some $1.4 billion has been removed from Thai debt since Oct. 31, according to data from the Thai Bond Market Association. That compares with inflows of 11.43 trillion rupiah ($932 million) into Indonesian local-currency notes over the same period, finance ministry figures show.
"There is a general outflow from emerging markets, but it’s probably been more pronounced in Thailand," Igor Arsenin, Barclays Plc's Asia head of emerging-markets rates strategy, said in an interview on Tuesday, referring to bonds. "Whether it's just temporary risk aversion or it’s a more permanent reduction of inflows into Thailand is a bit too early to say."
Thailand expects a drop in tourist arrivals, which could benefit other countries in the region, said Robert Hecker, Singapore-based managing director of hotel consultant Horwath HTL Asia Pacific. Tourism contributes about 10% to the country's gross domestic product.
Tourism, investment
Arrivals to Thailand will fall by half to 1 million this month, Tourism and Sports Minister Somsak Phurisisak said Jan. 23 in Bangkok. Advance bookings have been crimped by travel warnings from countries such as China, Malaysia, Australia, the Philippines and the US, whose authorities have warned citizens to avoid Bangkok's protest hot spots.
"There would definitely be people in the leisure market who would look elsewhere, so it could benefit other markets," Hecker said in an interview last week. Tourists may opt for destinations where you don’t need a visa or can get one on arrival, such as Indonesia and Malaysia, he said.
Toyota's Tanada said that while existing investors in Thailand are unlikely to relocate because of the political situation, it may affect the future level of investment and new investors may consider other Southeast Asian countries.
Indonesian opportunity
This is an opportunity for Indonesia to lure more foreign investment to its automotive industry, Johnny Darmawan, president director of PT Toyota Astra Motor and co-chairman of Gaikindo, the country's automotive industry association, said in a Jan 27 interview in Jakarta.
"We have already heard that some investors are considering moving their business to Indonesia from Thailand," Jemmy Paul, an equities fund manager at Sucorinvest Asset Management in Jakarta, said in Jan 24 interview. This could benefit industrial-estate stocks in Indonesia, he said.
Nissan Motor Co said the situation in Thailand would not affect its investment decisions, Chris Keeffe, a Yokohama-based spokesman, said in an e-mailed response to questions on Tuesday. Honda Motor Co is not looking for any alternatives to Thailand, Yuka Abe, a Tokyo-based spokeswoman, said in a Jan 27 e-mail.
History of unrest
The MSCI AC Asia Pacific excluding Japan Index or regional shares has dropped 7% since the end of October, when the protests started in Thailand. Over the same period, the Standard & Poor's 500 Index (SPX) has rallied 2%.
"Emerging-market Asean equities as a whole have only mildly benefited from the Thai political turmoil," Nomura's Das said. "This is because at that time, concurrent to the Thai crisis, the global appetite for emerging-market risk was weakening," he said, adding that some of the outflows from Thailand may have gone to South Korea, Taiwan and Singapore.
Thailand has had nine coups and more than 20 prime ministers since 1946. In the last few years, the country has been beset by clashes between supporters and opponents of former premier Thaksin Shinawatra, Yingluck’s brother. The country’s main airport was shut for almost two weeks in 2008 and protests turned inner Bangkok into a war zone in 2010.
"It's not the first time this has happened," Arsenin at Barclays said. "What's damaging is perceptions, investment and tourism. It's all reversible at the moment, but as time goes by some of it will become permanent."