A perfect time to buy into Thailand

Mark Williams, associate director at Isis Asset Management tells MoneyWeek where he'd put his money now.

Last year, one of the best-performing markets in the world was Thailand. It rose a good 116%. So it was no surprise that many analysts started 2004 positive on the market's prospects. Unfortunately, they were wrong: year to date, the market has fallen more than 20%. This sounds bad, but it is not a disaster given that the market has more than doubled from its lows in 2001. Is the fall an investment opportunity, or simply a sign that the consensus optimism was unfounded?

One of the more unusual aspects of the correction is that it happened at a time when the news out of Thailand looked good on both an economic and a company level. As Thailand steadily fell, so better data were released. In the first quarter many firms released results ahead of analysts' forecasts, while both exports and imports grew faster than expected. The main figure to disappoint was first-quarter GDP growth, which caused analysts to revise down their forecasts. But this still left growth at a pretty heady level, with NESDB - an economic think tank - predicting 7.7% for the year.

So how can the falls be justified? Take international capital flows. Foreigners were net sellers of the Thai equity market every month from September 2003 to June this year. This appears to be more a reflection of global investors shunning risk, rather than a specific dislike of Thai equities.

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As oil prices rose and China implemented measures to slow its economy, many of last year's best-performing markets pulled back. Thailand has also had its own specific problems with bird flu and terrorist concerns, but neither of these would justify such a big fall in equities.

There has been poor news from the property sector, which could be taken as a sign that the economic situation is deteriorating, but I'm not sure this is right. The first quarter is often a slow one for property, and Macquarie Research estimates that, while 17 of the 45 companies that they cover produced results worse than the previous quarter, in aggregate they were still better than the year before.

I believe the fall leaves us with an opportunity to invest in Thailand. Earnings have been rising as stocks have been falling, proving the strength of the operating environment and making the market's valuation more attractive. Companies in Thailand now have greater cash to hand than in the past, and are de-leveraging rather than throwing money at spurious investments, as has too often been the case before. The other enticing factor is that growth is moving away from overriding dependence on exports. This could partially insulate companies from one of the greater risks for equities - the deceleration of growth in China and the USA.

So what would I invest in now? In banks and construction stocks - both areas that have sold off dramatically during the downturn, but where earnings growth is good. Three stocks that fit the bill are Bangkok Bank, Land and Houses and Thoresen Thai Agencies. Bangkok Bank is one of the country's better-quality banks and should be a direct beneficiary of continuing growth. Land and Houses is a property developer that has fallen dramatically year to date, and Thorensen Thai is a shipping company that is likely to pay a high dividend.