Thailand has been in the throes of political crisis over the past few months, leading to the imposition of martial law in May after months of protests and threats of violence between two opposing groups—the anti-government People’s Democratic Reform Committee (PDRC), known as the “yellow shirts,” and the pro-government United Front for Democracy against Dictation (UDD), known as the “red shirts.” Dennis Lim, senior executive vice president and senior managing director, Templeton Emerging Markets Group, believes that despite Thailand’s current challenges, there is still a case for investing there, and reasons to be optimistic about the country’s future. He shares his on-the-ground perspective of the situation in Thailand after a recent visit there.
In the early hours of Tuesday, May 20, 2014, the Chief of General Staff of Thailand’s military announced the imposition of martial law in the Kingdom. Two days later, the elected government had been disbanded and a military coup d’état was in full swing.
The coup capped more than six months of political turmoil in Thailand. Anti-government protests led by opposition party leader Suthep Thaugsuban lasted almost six months before Prime Minister Yingluck Shinawatra was finally removed by the country’s Constitutional Court for alleged abuse of power. About a third of her cabinet members were also removed. The remaining cabinet members quickly regrouped to form an “acting caretaker” government, but that did not survive long either.
For most Thais and Thailand-watchers (including us), military coups in the country have almost become a way of life. Since the monarchy relinquished political power in 1932, this is the 12th military coup d’état, or an average of once every 6.8 years. If we add the number of attempted coups to the mix, the total number of attempted and successful coups rises even higher. Before this most recent coup, the last one took place in 2006, when the military took control while elected Prime Minister Thaksin Shinawatra was in New York to attend a meeting of the United Nations General Assembly.
Two weeks after the generals took control of the country, I decided to make a trip to Bangkok. My Thai work permit, which allows me to visit Thai companies and our own Bangkok office as often as I need to throughout the year, expires at the end of June. So, this was an opportune time to get my permit extended for another year and to find out first-hand how this latest coup is affecting the business environment in the country.
I landed in Thailand on June 1. Days earlier, anti-coup protestors had threatened to carry out mass protests over the weekend. This would directly contravene the military government’s ban on gatherings exceeding five persons. The protestors were planning to gather in Rachaprasong district, in the heart of Bangkok, where I was planning to stay during my visit. The army announced that it would be out in force that weekend and threatened to seal off the entire area if the protestors showed up. I quickly made back-up plans for an alternative hotel, just in case.
Driving into the city from the airport, I noticed that there was less traffic than usual on the roads. The driver told me that, with nightly curfews in place from midnight until 4 am, more people were opting to stay home. The driver told me that in spite of the military coup, it was business as usual for him. He said the city was calm and quiet all weekend and there were no “big protests.”
When I got to my hotel, I sensed that business was affected by the protest scare. The bellman was overjoyed to see a guest and eagerly helped me with my one small bag. I told him I could manage on my own but he refused to let go. Perhaps he was afraid I might change my mind and head straight back to the airport! I dropped my bag in the room and quickly headed out for a walk.
It was a warm, balmy night. The rainy season is fast approaching and within a few weeks, rain showers can be expected in the early evenings on a daily basis. It was 9:30 in the evening and the streets were a bit quieter than usual; there was not a single soldier to be seen in the streets. Fearing protestors, some shops had stayed closed through the weekend, but others were open for business. There were people in the streets. I walked into a convenience store and bought a soda before continuing on my walk.
The next morning, I paid a visit to a bank in Thailand. I was warmly welcomed by one of the bank’s senior executives. He said that while political uncertainty in the past seven months had made business conditions more challenging, it was pretty much business as usual. He said the coup could actually be a good thing for the country since it broke an impasse. Before the generals took over, the government’s budget had been frozen for several months. The generals have since announced plans to resume government spending to build roads, bridges, subways, etc.
The military has put together an “advisory council” to manage the country until an election can be called, which is expected to be about 15 months from now. I found it interesting that the advisory council comprises representatives with different political affiliations, including representatives from former Prime Minister Yingluck’s Puea Thai Party. It appears to me like Thailand’s military seems intent on trying to bring about a long-lasting solution.
Over lunch, a Thai analyst I spoke to told me a similar story. Since late last year, the economy had started to slow because government spending on infrastructure and other needed projects had been disrupted. The daily street protests led by Suthep were also affecting the important tourism industry. Tourist cancellations were starting to pick up as pictures of the protestors hit media outlets around the world, even though the protests were limited to just a small part of Bangkok and the rest of the country was not affected. Something had to be done to get economic growth back on track.
I dropped into our Bangkok office to catch up with our analysts Nont Lewchalermwong and Aek Mahaphan. Both Nont and Aek have been working hard to identify more bargains for the Templeton Emerging Markets Group in the current environment. Nont said: “Most people outside of Thailand assume the wheels have fallen off the wagon, but that is not the case. The stock market is up about 3% since the coup.1 It is business as usual for most companies.”
The next day, I went to the One Stop Center for Visa and Work Permit to apply for my work permit extension. It was crowded as usual. I took a number and had to wait two hours. I looked around and there were quite a number of Japanese expatriates applying for work permits, a reflection of the sharp increase in foreign direct investments from Japan. There were also people from other parts of Southeast Asia, Korea and China. It appears to me that the political problems haven’t significantly impacted the number of foreigners moving to Thailand for work-related reasons.
On the way back to the airport, I stopped to visit the Silom business district, an area in Bangkok that is full of small business enterprises and eateries. The sidewalks were crowded with people. Hawkers peddling food on pushcarts could be seen everywhere. The streets were jammed with taxis, cars and motorcycles. The famous Bangkok traffic jam was alive and well here.
Thailand certainly is facing a number of challenges right now, challenges that could impact its economy in the short term. Of course, we are aware of the potential for further political problems there. However, as investors in Thailand for many years, we feel confident the country can recover. And, after my recent visit there, I still believe there are many reasons to continue looking for potential investment opportunities there. I also believe in the importance of looking beyond what the media headlines portray. At times, you’ll find there is a different story, and often one that is far-less shocking.
Dennis Lim’s comments, opinions and analyses are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.
Important Legal Information
All investments involve risks, including the possible loss of principal. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging markets, of which frontier markets are a subset, involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Because these frameworks are typically even less developed in frontier markets, as well as various factors including the increased potential for extreme price volatility, illiquidity, trade barriers and exchange controls, the risks associated with emerging markets are magnified in frontier markets.
1. Source: Bloomberg LP; Stock Exchange of Thailand (SET) as of June 5, 2014. An index is unmanaged and one cannot directly invest in an index. Past performance is no guarantee of future results.