Casting a wary eye towards the future

Casting a wary eye towards the future

'Mr Sandwich' warns of long-term economic reverberations from the pandemic.

Mr Sirivat has seen his share of economic catastrophe. But he says the current pandemic could have dire consequences.
Mr Sirivat has seen his share of economic catastrophe. But he says the current pandemic could have dire consequences.

Having outlived two economic crises that produced disastrous outcomes for the global economy, stockbroker turned food and drink entrepreneur Sirivat Voravetvuthikun has a warning: the coronavirus pandemic could be the worst economic crisis of his lifetime, posing an explicit danger to Thailand's economic well-being.

After graduating from the University of Texas at Austin in 1974, Mr Sirivat went on to become chief executive of Asia Securities at 28. His success in the early 1990s was shattered by the 1994 stock market crash in Thailand, with the Asian financial crisis in 1997 the final blow to his investment business, particularly a high-end resort condo project at Khao Yai National Park.

Declaring bankruptcy in 2003 with unpaid debt of nearly 1 billion baht, Mr Sirivat persevered and emerged from bankruptcy three years later by slowly building up his business, Sirivat Sandwich, followed by running a chain of coffee shops and a catering operation.

"I still monitor investment in the stock market. Using my investment knowledge and experience to manage private funds is a side job to my food and beverage and catering businesses," said Mr Sirivat, also known as "Mr Sandwich".

Despite his extensive investment experience, he's as oblivious as anyone about how the Stock Exchange of Thailand index will move next, given that the domestic stock market is heavily linked with its global counterparts: "If the Dow Jones index still goes down, the SET index will react in the same way."

The SET index will likely continue to plummet amid foreign equity sell-offs if the US government fails to control the outbreak, Mr Sirivat said.

Another factor causing investors to dump their stock holdings is the fractious oil war between Russia and Opec. The standoff has effectively pulled down energy shares and crude prices during the past two months.

"Hopefully we will get through this crisis, although it could be the worst crisis in my life because this is a pandemic with no end in sight," Mr Sirivat said. "It is difficult to predict the future investment outlook. Holding cash as a major asset in the portfolio is ideal under the current circumstances to wait for the situation to improve."

Selecting high-dividend stocks yielding more than 5% is another strategy investors can opt for, but this makes it difficult to generate profits from capital gains in the near term, he said.

WORST RECESSION

The two big economic crises that beset Thailand in the past 25 years were the 1997 Asian financial crisis and the 2008 subprime mortgage crisis. Both the economy and the domestic stock market were battered heavily by the two downturns.

The Great Depression during the 1930s was also devastating, as it was one of the catalysts that caused the 1932 Siamese Revolution, which toppled the absolute monarchy.

In hindsight, the 1997 event was undeniably the worst recession in contemporary Thailand, crippling the country's financial health for years to come.

The Asian crisis is still remembered vividly. Many people lost jobs, and the government's credibility in managing the economy was tarnished domestically and internationally.

The crisis unfolded from continuous current account deficits, lax prudential regulations and massive corporate borrowings in foreign currencies, with many loans backed by the real estate sector, which later caused a burst bubble in properties and stocks.

Inflows of hot money to speculate on the baht also contributed to the economic collapse. Thailand's foreign reserves were eventually depleted in an attempt to protect the local currency against hedge funds and global speculators.

Ultimately, July 2, 1997 was the day that Thai financial authorities decided to float the baht's value. They could no longer adopt the pegged exchange rate regime, resulting in a massive capital flight.

A downward spiral then occurred among many companies across the business spectrum, with several financial firms going bankrupt and a skyrocketing unemployment rate seen afterward.

One of the most memorable quotes during the 1997 Asian financial crisis was "I don't have it, I'm not running away and I'm not paying," uttered by Sawasdi Horungrung, a former steel tycoon and current chairman of advisers to the board of directors at Hemaraj Land and Development Plc.

Thailand's economy gradually recovered after 1998, then stumbled to a 2.3% full-year contraction in 2009 in the wake of the subprime mortgage crisis that began in the US in 2007.

Spillover from the last crisis took a toll on Thai exports, adding to domestic political turmoil that had affected tourism and other service industries.

But the country learned a great deal from the 1997 crisis and managed to somewhat withstand the predicament of 11 years later. Thailand was partially shielded from the 2008 crisis because of high foreign reserves, a sound domestic banking system and trade linkages with China.

HOUSEHOLD DEBT

Thailand's economy may no longer be resistant to a full-year contraction, as the pandemic has upended previous expectations of an acceptable growth ratio.

Before the outbreak this year, Thailand's economy had been slowing amid sluggish exports, which account for about 70% of GDP.

With shipments still in the doldrums, other economic drivers such as private consumption and public and private investment were tapped to rev up the economic recovery. But these drivers failed to live up to expectations, in part due to high household debt and delays in fiscal 2020 budget approval.

The tourism industry has been the saviour of the Thai economy in the past few years, contributing more than 10% of GDP and providing over 2 trillion baht from foreign tourist spending. But the vigour of the industry has diminished by the day in 2020 against the backdrop of the pandemic.

Through Mr Sirivat's lens, Thailand's current economic situation is vastly different from that of 1997.

The financial health of corporations was weak at that time. With large foreign-denominated debts and imprudent lending, debt leverage among Thai corporates prevailed back then, he said.

Corporations are much healthier compared with 23 years ago, with ample liquidity and high loan-loss reserves in the banking sector.

The modern-day canary in the coal mine is household debt, Mr Sirivat said.

The Thai workforce of roughly 30 million has accumulated high personal debt, mostly in credit cards and home loans, over the years, he said.

Household debt stood at 13.5 trillion baht in last year's fourth quarter, according to Bank of Thailand data.

The present-day economic slowdown has caused corporations to overload on expenditure, with a steep fall in revenue, Mr Sirivat said.

More employees will be laid off or receive pay cuts as employers aim to stop losses through a cost-saving survival strategy, he said. This will eventually prompt debtors to turn to informal loans, which will translate into a higher accumulated burden.

"I see that share prices of non-bank companies have dwindled sharply, as investors expect non-performing loans to be higher soon," Mr Sirivat said.

He urged the government to take action to mitigate the ongoing problems before it's too late.

"The first priority now is stopping the number of patients infected with the novel coronavirus," Mr Sirivat said. "We want to see extreme measures to control super spreaders from any place, especially those returning from overseas or people breaking the rules [of containing the outbreak].

"If we can save the tourism industry and its employees, our economy can recover quickly when the viral outbreak is contained."

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