The best word to sum up Bangkok right now? Stagnant.
That may seem an odd description. Bangkok has always been seen as one of the most intense Asian cities: crowded, noisy, and very rough around the edges.
But to my mind, the city hasn't moved on much compared to the last time I was here, back in 2007.
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Sure, the economy looks strong. And there are some attractively-priced companies. But the country's political woes overshadow everything that's good about the economy.
I'll explain more about this in a moment. But the fact is, despite its decent performance this year, I'm still not convinced about Thailand as an investment destination for most people.
However, for investors with the stomach for risk, there are some potentially lucrative opportunities.
Construction is booming again
I'll start with the good news. Cranes dot the horizon. Builders look just as busy as they did in Kuala Lumpur, which I visited last week. New buildings are springing up. And many of those that were left unfinished after the Asian crisis in 1997 have finally been completed or demolished.
These ruins have long been a feature of the Bangkok skyline. And quite a few still remain. One of the most infamous, Sathorn Unique (pictured), was meant to be one of the city's most exclusive residences. Today it's a 50-storey shell.
How can prime sites be left to rot like this? The reality is that until recently, there has been no pressure to get rid of them. Bangkok had no shortage of building space for other developments. And after the crash, ownership of many such projects was unclear. So they just sat there.
But with Thailand booming again, there's finally a financial incentive to make use of the sites or most of them, at least.
New consumers even in the slums
Another good sign is that the few shopping centres I visited all looked busy. Thai consumer confidence is at record highs. Shops that cater to younger consumers seemed particularly popular.
For example,Krispy Kremehas just opened its first Thai outlet at Siam Paragon, a high-end shopping centre in Bangkok city centre. The company is advertising heavily on the metro and TV. When I popped in on a Friday evening, I counted more than 50 customers at the counter (annoyingly the franchise holder is a private company, so we can't invest I checked as soon as I saw the queue).
Of course, it's misleading to focus just on expensive shopping malls many people who live in emerging countries never visit such malls. But consumption is even spreading to the slums. Take a look at the photo below: it shows one of the corrugated-iron shacks along the side of the Chao Phraya the river that runs Bangkok.
Notice anything surprising? Yes, that's a satellite dish on top of the house.
There are even more striking examples all over Bangkok. On the new rail-link to the airport, you fly over multiple slums, and you can see a forest of these distinctive red dishes from True, the local telecoms and TV group.
I'm not pretending that the slum dwellers are suddenly much more affluent and waiting to flood the country with cash. One look at their homes should tell you they're not. But it's fair to say that they are developing a bit of discretionary spending. And clearly there's a market for firms who can tap into that.
This isn't just confined to Thailand. A friend tells me it's also very common in the favelas of Brazil, which are probably at roughly the same stage income-wise. (Using purchasing power parity, which adjusts for the difference in the costs of goods and services, Brazil has a GDP per head of around $10,500 compared to Thailand on around $8,000.) You can even see it (to a lesser extent) in some of the slums of far poorer countries such as India.
The bad news political tension is everywhere
Those are the good points. Unfortunately, the country is still rife with the political problems I've mentioned many times before.
Remember the protests by the Red Shirt faction earlier this year? The Red Shirts support deposed prime minister Thaksin Shinawatra. In April and May this year, they occupied central Bangkok for several weeks, before the army forcibly broke up the protests. There were around 90 deaths.
The issues that drove the protests have not been resolved. Beneath the surface the situation is still very tense. In September, a Red Shirt protest march ended peacefully. But there were several bombings in the city over the summer, that seem to be linked to the faction. As a result, security has been stepped up. There are guards and scanners at the entrance to many metros and malls.
The biggest worry is also the most long-standing the outlook for King Bhumibol Adulyadej. He's been the head of state since 1946. As such, he's the only monarch that most Thais remember, and one of the few constants in almost 65 years of vast change. He's revered across the country you often see taxis with a "Long Live The King" poster across the back window.
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But this impartial and benevolent image is somewhat misleading. The royal family is one of many factions operating in Thai politics behind the faade of a full democracy. The king is less active than many of those around him. But there's little doubt that the coup that deposed Thaksin had his tacit consent, for example.
However, discussing any of this in Thailand would lead to prosecution under the lse-majest laws. So many ordinary Thais are unaware of his interventions, even when it goes against what they voted for.
As a result, the king remains a unifying force. He's played a huge part in resolving problems in the past. Many feel his presence stopped the recent troubles from getting even worse.
What happens when the king dies?
But the king is now 82 and in poor health. He's been hospitalised since September 2009. When he dies, his calming influence will be lost. It's impossible to know what will happen to Thailand then.
His son and heir is unpopular and wouldn't be able to play the same role. His daughter might be able to, but there's no indication that she is being lined up for succession. Or that she could win the political battle with her brother that would probably result.
Unlike many of the political risks in Asia, this one is a "when", not an "if". And many expect the worst. "The day the king dies, there will be riots", a politician in a neighbouring country told me confidently.
To be fair, I don't think this is necessarily the case. Current prime minister Abhisit Vejjajiva is an intelligent man, doing his best in difficult circumstances. He understands how Thaksin appealed to the rural majority by acting to improve their standard of living, rather than ignoring them as the Bangkok elite has always done. And his government has followed Thaksin-like policies to try to win their votes. This is perfectly natural as incomes and education rise, the rest of the country wants their say and their share.
Unfortunately, many of the old guard who exercise power behind the scenes will resist this. Take General Prem Tinsulanonda, a former prime minister and top royal advisor. His view on the role of an elected prime minister relative to the monarchy and the military was nicely summed up in an interview with the Far East Economic Review a few years ago. "In horse racing they have the stable and the owner of the stable owns the horse. The jockey comes and rides the horse during the race, but the jockey does not own the horse. It's very easy."
The general attitude in Thailand seems to be to hope that the problems will go away, as the photo below sums up. This is from the rebuilding work at the Central World mall, which was partly burned down by protestors during the May violence. It's part of a string of messages along the security fence.
I can't say I found it reassuring. Hope is not a strategy.
If you want to invest, be willing to take on risk
It's impossible to know what will happen when the King dies. That's why I've never been terribly keen on the Thai market. I'll admit that means I've missed out on one of Asia's top performers of the last year or so, as the chart below shows. (Orange is Thailand's SET benchmark, and green is the MSCI Asia ex Japan.)
Many investors seem to believe that the deaths during the protests shocked Thailand into pulling back from the abyss. I hope they're right, but I'm not confident they are.
Yet being in Thailand again has reminded me of just how powerful the story could be if the transition takes place without too much trauma.
So is there merit to investing here?
It's risky. And if you're at all worried about the very real prospect of substantial losses, you should look elsewhere. However, if you decide to take the plunge, you may as well go for smaller, riskier stocks rather than large defensives.
Why? Because in the worst-case scenario severe conflict bordering on civil war everything will be hit, from large caps and government bonds downwards. And the overall market is not really paying us for this risk. The SET currently trades on a bit more than 14 times estimated earnings. That's less than much of Asia, but it's not hugely cheap.
So in a worst-case scenario, you stand to lose big, regardless of what you invest in. On the other hand, if everything goes well, the riskiest assets should benefit the most. The country would then likely bein for a very strong long-term bull market. And in secular bull markets, smaller stocks typically outperform larger ones.
And despite my concerns, I have to admit, I've come across a few small and medium-sized companies in Thailand that have sparked my interest. I'm digging a bit deeper into these tempting looking plays I'll let you know more once I've investigated further.
This article is from MoneyWeek Asia, a FREE weekly email of investment ideas and news every Monday from MoneyWeek magazine, covering the world's fastest-developing and most exciting region. Sign up to MoneyWeek Asia here
Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.
Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.
He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.
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