Thailand’s fragile boom

Thailand has been Asia's second best-performing major stockmarket this year, with the benchmark SET index up 30% in dollar terms. But the bull run looks vulnerable.

With investors focusing on Asia's new star, the Philippines, few have noticed that Thailand is the region's second best-performing major stockmarket this year. The benchmark SET index has gained 30% in dollar terms.

Emerging Asia as a whole, tracked by the MSCI Asia ex-Japan index, has barely risen in 2012. Given Thailand's recent performance and outlook, however, the SET's run looks vulnerable to a setback.

Thailand has recovered from last autumn's devastating floods, which cost $46bn and wiped 9% off GDP in the fourth quarter of 2011. In the second quarter of 2012, GDP expanded by 4.4% year-on-year. In the third quarter, however, the pace slowed to just 3%. The government upped spending to repair the flood damage, notes Sean Geary on, but the boost from these various building projects has now dissipated.

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With the domestic manufacturing rebound tailing off, consumers look unlikely to take up the slack. As Lex points out in the FT, demand is being artificially buoyed by "short-term boosters", such as a tax breaks for first-time car buyers and a rice price guarantee programme.Household spending on services and non-durable goods was lacklustre in the third quarter.

Moreover, Thailand remains heavily dependent on exports for its national income, and is thus "being dragged down by its poor export performance" as the world economy has slowed, says Valentina Romei on In the first ten months of 2012, exports have gained just 0.3% year-on-year. The central bank has trimmed its export growth forecasts for this year and next, and hence its overall growth forecast for 2013. Expect "uninspired growth" of around 4% next year, down from this year's likely 4.4%, agrees Standard Chartered. So the post-flood rebound has been hit by the global downturn.

Another concern is the political backdrop. Years of instability and mass protests have followed the ousting of Prime Minister Thaksin Shinawatra in a military coup in 2006. The current leader of the government is Thaksin's sister Yingluck Shinawatra and the ongoing divisions between pro- and anti-Thaksin forces means that the situation remains "fragile", says Standard Chartered. Finally, the stockmarket's forward price/earnings ratio and book value are at near-decade highs.

Given all this, that looks "hard to justify", says Lex.