Merryn's Blog

Thailand is cheap – but it's not time to buy

Thailand is probably the cheapest market in emerging Asia. But that doesn't make it a buy. Until it has a functioning government that makes decisions and pushes through policies, it is likely to remain a value trap.

Thailand is probably the cheapest market in emerging Asia. The SET index trades on a p/e ratio of just 12.8 times this year's expected earnings, even after a near 60% rally this year. So does that make it a buy? No.

The political situation there remains appalling. The coalition took over last December after a democratically elected government was forced out by politicised courts, and the army refused to act against protestors that were paralysing the country. That administration is still in power.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

But it says everything that many of the crucial figures involved in this weekend's discussions about fixing the country's disastrous constitution are technically banned from politics.

Thailand is not a functioning democracy. It's a motley crew of different interests the royals, the army, businessmen, key provincial politicians, the judiciary - conniving behind the scenes. That wouldn't be a problem - democracy isn't necessary for development if most of them were pulling in the same directions. But they're not.

Advertisement
Advertisement - Article continues below

To take just one example, last week, a court ordered Bt400bn ($12bn) of oil and petrochemicals projects to be halted on environmental grounds, even though the plans follow government guidelines. The projects are big enough to have an impact on growth by themselves - but the real problem is that if this ruling is upheld, it risks scaring off future investment plans by Thai and foreign firms. Who wants to invest in a country where even those who make the rules don't seem to have a grip on what they are?

Until Thailand has a functioning government that makes decisions and pushes through policies, the market is likely to remain a value trap. It's the kind of situation that tempts you to keep adding to your position because it looks so much cheaper compared with anywhere else. One fund has done just that: Templeton's Asian Growth Fund has 25% of its assets in Thailand, a market that accounts for just 2.5% of emerging Asia's GDP in purchasing power parity terms.

If Thailand starts to fix its problems, overweighting could look a very smart call. But that might be years away. In the meantime, both the economy and the market risk being left behind by better-run neighbours.

For more on investing in Asia, sign up for our free weekly email, MoneyWeek Asia .

Advertisement

Recommended

Visit/investments/stockmarkets/600688/bullish-investors-return-to-emerging-markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Visit/519872/beware-the-hidden-risks-when-investing-in-emerging-markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019
Visit/517688/the-british-equity-market-is-shrinking
Stock markets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Visit/517395/emerging-markets-buy-when-the-news-is-bad
Emerging markets

Emerging markets: buy when the news is bad

Emerging markets are being squeezed by local turmoil and by more general factors. But bad news can spell opportunity for investors.
5 Nov 2019

Most Popular

Visit/economy/inflation/600799/federal-reserve-inflation-money-printing
Inflation

Here’s why the Federal Reserve might print more money before 2020 is out

The Federal Reserve wants to allow US inflation to run “hot” for a while. But that’s just an excuse to keep interest rates low – and possibly print mo…
10 Feb 2020
Visit/investments/investment-strategy/600804/the-secret-to-avoiding-being-panicked-out-of-your-portfolio
Investment strategy

The secret to avoiding being panicked out of your portfolio

With the coronavirus continuing to occupy headlines, investors still aren’t sure how to react. But the one thing you mustn’t do is panic. Tim Price ex…
11 Feb 2020
Visit/economy/600796/money-minute-monday-10-february-lacklustre-growth-in-the-uk-and-europe
Economy

Money Minute Monday 10 February: lacklustre growth in the UK and Europe

Today's Money Minute looks ahead to the week's GDP growth estimates for the UK and the eurozone, plus inflation figures for the USA.
10 Feb 2020
Visit/517625/tr-european-growth-trust-why-investors-shouldnt-overlook-europe
Sponsored

Why investors shouldn’t overlook Europe

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, tackles investor questions around Europe’s economic outlook and the conseq…
6 Nov 2019