Robert Harvey, portfolio manager at Matthews Asia analyses the impact of Thailand's military coup for investors.
Robert Harvey, portfolio manager at Matthews Asia analyses the impact of Thailand’s military coup for investors.
Two days after it declared martial law early last week, Thailand’s military announced that it had seized control of the country in a coup. This is not an entirely surprising development, given Thailand’s history of repeated coups.
For several years, the country has been locked in a bitter political struggle between its pro-government “red shirts” and anti-government “yellow shirt” protesters. Earlier this month, the country’s Constitutional Court ousted from office Prime Minister Yingluck Shinawatra for abuse of power. The military has said it aims to “restore peace back to the country,” but, thus far, has given no timeline as to when the country would return to democracy.
We will wait to see how the action by the military plays out in the country. As of late last week, the Wall Street Journal reported that there was a sense of “defiance and brewing discontent” amidst the uneasy calm on Friday.
But, at this point, it’s difficult for anyone to know with any certainty what will happen or how Thailand intends to bridge the divide between its main rival parties. All of this probably leaves investors questioning whether they should head for the exit.
There is a sense that the process will be lengthy, and that a new constitution will be drawn, but so far the local financial markets have remained steady. The baht, and the equity markets have remained remarkably stable. This is partly because many investors have seen it all before. Political turmoil here is not new.
At Matthews Asia, we have been witness to such events in Thailand for over 20 years; we have invested in the country since 1996. While macroeconomic data has been deteriorating over the past few quarters as growth has slowed, we can expect a drop in tourism (which accounts for approximately 10% of GDP) and a pause in investment activity to contribute further to near term weakness.
It seems probable that we may see earnings downgrades across many sectors. These downgrades will make current valuations seem less attractive. Nevertheless, fresh out of company meetings in Bangkok just days ago, our invest¬ment team members have observed a “business as usual” perspective at the company level. Some Thai companies are seeking to build more presence in emerging parts of Asia, and we might expect an accel¬eration of such initiatives, should tensions be on-going.
“Over the medium term, we remain optimistic that a resolution can be found and that the country can begin to refocus on addressing some of the economic issues it faces.
The events in Thailand are unfortunate; but they do not change our investment approach-using a long term perspective we continue seeking strong, quality companies that can operate in a variety of market environments. We will continue to monitor the situation closely as periods of short-term uncertainty can create attractive opportunities for long-term investors.”