The new president of the Stock Exchange of Thailand is pondering opening up the central trading system to foreign investors.
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Opening the trade system to foreign investors would be a way of boosting liquidity, particularly for the top 30 per cent of listed companies, which could be promoted to be on a par with their regional peers.
Supported by liquidity, these companies should enjoy higher trading volume and hence higher prices. With high prices, they could be included in the Morgan Stanley Capital Index, and then they would then fully show their business potential, which they still have despite negative factors at home and abroad. Thai companies’ resilience to the political crisis will also be Charamporn’s message to international investors.
The 2009 market rally reflects the perception that valuations are about long-term potential, and that political crises in Thailand rarely have a dramatic impact on the fundamentals of the economy. If we look at the EV/EBITDA multiples of the oil and gas sector, for example, valuations are still low compared to regional peers. This is partly a reflection of regulatory risks and political instability in Thailand.
Foreign direct investment has decelerated markedly in Thailand, but inflows should continue in 2009 and 2010 due to the secular trend to move production away from advanced economies.
The medium-term outlook is sobering, with growth expected at 3.5 percent in 2010 and likely remaining below potential for the next three years. Because the Thai economy is largely dependent on final demand in advanced economies, a return to pre-crisis rates of economic growth (a full recovery vs. a rebound to pre-crisis levels) will require a combination of (a recovery of demand from advanced economies and a rebalancing of the sources of growth to reduce Thailand’s dependence on demand from advanced economies. Neither process is likely to be swift. Recovery from a financial crisis is a lengthy process that involves the rebuilding of balance sheets, and the IMF estimates that half of the losses in the financial system in advanced economies are yet to be recognized.
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