Thailand: Thais are learning to smile again

April Fool's Day was expected to be a landmark day for Thailand's embattled business community as the newly designated bankruptcy court came into being in Bangkok. The court was scheduled to open its doors after months of wrangling finally resulted in a revised bankruptcy bill being approved by the country's House of Representatives.

The new legislation is considered one of the most crucial of 11 new economic reform bills currently going through the Thai parliament and is seen by many investors and bankers as the key to the country's economic recovery.

Cautious optimism

Opinions remain divided on whether Thailand has hit the bottom, or is even starting its long climb back to recovery. But there is nevertheless an air of cautious optimism beginning to creep into many bar-room conversations between the expatriate managers in town.

"It's a jigsaw puzzle and we are beginning to see 70% of it now," said Philip Adkins, head of research at Seamico Securities. Direct investment seems to be leading the way, with a "staggering" number of foreign companies setting up business in the kingdom, he observes. That enthusiasm has yet to filter into the stock market, however. The index is hovering around the 360 point level - down from around 750 at the beginning of 1997. Daily volumes are a meagre Bt4 billion ($110 million) to Bt6 billion, some 40% of which is attributable to foreign investors.

Although the signals from analysts are still mixed, they are tinged with an underlying desire to be positive. The happy-go-lucky trait that has long characterized the Thai people now seems to be rubbing off on the foreign brokers and analysts. The "land of smiles" is beginning to smile again.

"From a market perspective I am very positive," said Douglas Cairns, chief investment officer of Nakornthon Schroder Asset Management. "First-quarter results are due out later this month [March] and some of them are going to be quite nasty, particularly some of the banks, which might make for a bit of volatility, but the background infrastructure to aid recovery is being put in place. It still looks like we are just about reaching the bottom and bouncing along the bottom, but there are no real signs of recovery yet."

Adkins identifies the economic reform legislation as a key component of recovery: "The programme of legislation is one step in the right direction, but only one step. The doom-mongers are saying it will take for ever and a day for things to happen, but that is not really true. A lot of companies have already been restructured but they were in pretty good shape to begin with. Now there are the ones that are more difficult to restructure and a lot of those have intransigent managers and old-fashioned shareholders." He predicts that many "dinosaurs" will die over the next few years.

"An enormous number of companies have already bought into Thailand," says Adkins. "And if you look at that it's almost impossible to believe Thailand is not going to recover sooner rather than later." He puts a timeframe of six to nine months on recovery. Initially that will happen slowly, but the pace will accelerate rapidly over the next few years.

He points to the automotive sector as one area of potentially high growth, with General Motors and Chrysler among those gearing up for exports and earning the country valuable foreign dollars.

But there is less sign of indirect investment. "The equity investors have had their eye taken off the ball with other things to look at such as Latin America," says Adkins. "Even regionally, Thailand is pretty small as an investment area and they will wait until they see concrete proof of recovery." Adkins expects to see recovery, probably in the fourth quarter of this year, at which point he forecasts some strong upward movement on the Thai stock index. In the shorter term, the market is likely to be fairly quiet until uncertainty lifts over the passage of further financial reform legislation. The mid-April Songkran holiday will also keep trading subdued.

Long-term interest

"Since the announcement of the bankruptcy laws, the market has been gradually picking up and banks have actually outperformed the market," says Cairns. "There is more interest coming into the stock market now. Some of the foreign money coming in is from long-term investment fund managers, more so than short-term hedge fund managers."

Another bright sign is growing consumer and business confidence. "The challenge was 1998," said Tim Kirby, personal banking manager at HSBC in Bangkok. "It was an environment that nobody was used to and nobody in Thailand had experienced for a long time. The worst is over and we are looking to a bright future. We are assessing our eligibility criteria for business all the time based on where we were, where we are and we think we will be."

He adds: "Things seem to be more stable. The pointers seem to be towards improvement rather than worsening. Things are as they are now but people are looking for upturns even as early as halfway through this year. Things are going to be a damn sight better than they were last year. The economists are all singing from the same hymn sheet on where we were last year and the change this year. It might not be a growth year, but certainly better than last year," he added."

Kirby too points to the inimitable optimism of the Thai people: "The Thai culture is not that way inclined. They live for today, and today was better than yesterday. From what the eye sees in Thailand there is still a lot of activity. Where in other countries the shutters are down and the streets are dusty, Silom [Road - an important Bangkok thoroughfare] is still hectic."

Inflation is heading downwards ...

... and the baht is stabilizing against the dollar

Source: Datastream/ICV