Political unrest in the Middle East, especially in Egypt, has awakened the investment community, generating the expected response to a fundamental crisis. Investors have quickly moved their capital to safe havens, predictably U.S. Treasuries, Gold and other precious metals, while they ordered withdrawals from popular emerging market funds.
Fund managers have cautioned investors to look long term, since they know from experience that political turmoil has a way of working itself out. These same managers point to Thailand as a perfect example that confirms the wisdom of their advice.
It was a year ago in March of 2010 that the UDD “Red Shirts” staged a series of prolonged protests against Prime Minister Vejjajiva’s government, asking him to step down and dissolve Parliament. Popular opposition had been fomenting throughout 2009, and finally erupted with large street demonstrations in Bangkok in March 2010. These protests were the largest in Thai history, and although peaceful, 80 civilians and 6 soldiers died in skirmishes, while another 2,100 individuals were injured.
A state of emergency was quickly declared, and the military began to crack down on the protesters. Despite a violent month of April and proposals that were offered and then withdrawn, the protest was finally quelled by the military in May when the UDD protesters finally surrendered and were arrested. Protests have continued into 2011, but on a much more peaceful note. However, over 100,000 people lost their jobs in Bangkok due to the protests, and government officials set the overall cost for the entire uprising at US$5 billion.
Political unrest was driven by political motives, without a focus on the business community
The crisis caused a similar reaction within the investment community by international investors. Capital was quickly withdrawn from funds that had an emphasis on Thailand. However, fund mangers did not evacuate so quickly. Withdrawals had a predictable effect of diminishing fund values, but emerging market funds were quick to invest at bargain prices. Political unrest was driven more by political motives alone without a focus on the business community. Fund managers that had done their due diligence knew that banking, some manufacturing, petrochemicals and petroleum industries would still perform and produce worthy returns. These fund managers were rewarded as their share values increased over 50% over the past year.
Emerging markets have drawn investor attention of late, although prudent investors were tuned into the idea back at the millennium crossover. Emerging market funds have produced phenomenal returns over the past decade, but caution has been advised due to the recent burst of demand attention. The focus has primarily been on Asia and the so-called “BRIC” countries, Brazil, Russia, India and China. These powerhouse economies are growing at rates that easily double or treble real GDP growth rates in the developed countries of the world. Economists predict that these trends will continue for at least the next two decades, creating a new economic world order with China on top, followed by the U.S., India, Brazil, and Indonesia.
Political unrest still puts a damper on investor confidence, despite recent share value gains
Thailand is expected to benefit from these trends as well, as off shoring, coupled with low labor and transportation costs, continues to drive this era of globalization. Political unrest has still had a damper on investor confidence, despite recent share value gains. Government reports confirm that more investment funds have left the country over the past twelve months than have returned. Investors are still viewing other targets as more favorable at present.
Investment flows can easily be skewed and misunderstood without further analysis. Government policy has encouraged local businesses to invest overseas, especially for raw materials related to energy needs. Forex controls on the Baht were loosened during 2010 in response to the pressure on the currency. Nearly $4 billion were invested in two energy deals related to oil sands in Canada and coal deposits in Australia. More deals are in the pipeline that pertain to steel and cement.
The Thai economy is projected by the World Bank to grow 3.2% in 2011, the lowest in Asia the past five years. Tourism has yet to recover as expected, but sectors of the economy continue to perform, and if political unrest can be managed successfully, then economists believe that growth will ascend to 4.2%. Advanced economies of the world should be so lucky.
Tom Cleveland has had an extensive career in the international payments industry with over 30 years of experience in executive management, corporate governance and business development. Tom served as CFO for various Visa International entities from 1980 until 1999, retiring with the title of Group EVP and Treasurer. Tom currently is a market analyst for Forex Traders, an online resource the currency markets and forex.
About the author
Tom Cleveland has had an extensive career in the international payments industry with over 30 years of experience in executive management, corporate governance and business development. Tom served as CFO for various Visa International entities from 1980 until 1999, retiring with the title of Group EVP and Treasurer. Tom currently is a market analyst for Forex Traders, an online resource the currency markets and forex.
