Asiamoney.com: Korn’s pitch for Thailand

Asiamoney.com Opinion

Thai finance minister Korn Chatikavanij and Stock Exchange of Thailand president Charamporn Jotikasthira were being chaperoned around Asia by Credit Suisse last week, in an attempt to rehabilitate Thailand’s reputation among foreign investors in the wake of the red shirt protests.

Korn & Co have a good story to tell. Although tourism has obviously been battered, all other indicators look remarkably strong: private consumption, private investment and exports are all on track for their best performance for at least three years in the second half of 2010. GDP, which shrank 2.3% in 2009, is being called in a 6.5 to 7.5% range for 2010 by economists. Thai companies are enjoying strong profit growth: the banking sector just logged its best quarter of profit in almost a decade. And most remarkably of all, the SET index has gone steadily upwards all year, barely feeling the effect of the riots and their painful resolution even when the stock exchange itself was on fire. In fact, the market has doubled since December 2008.

But it’s not the whole story. Thailand’s impressive resilience has been secured on domestic demand and money, rather than foreign capital. The Thai stock market may have looked stable as buildings went up in flames in May, but there was another story behind the scenes: TB58.8 billion (US$1.88 billion) of foreign money fled the market that month, mainly being bought up instead by local retail investors. Some of that foreign money has trickled back in but by August, barely a third of what had fled in one month had returned in the subsequent three. Credit Suisse considers Thailand among the most under-owned market by foreigners in all of Asia. Foreign investors are not yet convinced about Thailand.

And why should they be? Solid economic numbers are all well and good but foreign fund managers expect that a resumption of protest and dissent would hit markets, and hence their portfolio investment. Ask a major regional fund manager about Thailand and the first thing that comes up is never GDP or domestic private investment: it’s red shirts. There is no clear evidence that the social inequality between city and country, industry and agriculture, has been resolved, and that remains the fundamental cause of the unrest. Until foreigners are convinced of Thailand’s ability not only to trigger recovery in its economy but sustain it in peace, they won’t be back in force.

Central to this is a peaceful and conclusive election, and on this score Korn has some remarkably candid things to say. The ruling party – one which has not won a democratic election for power – is committed to holding an election by the end of 2011, but Korn suggested it could come much earlier, for starkly pragmatic reasons. An early election, he says, would mean going to the polls before the opposition has a chance to file a motion of no confidence in parliament, which would probably happen in February; and would also be before the next dry season. “That is when farmers are most unemployed, rural sentiment is low and they are feeling the least happy,” Korn says, pointing out the last two red shirt protests occurred in March and April during the dry season. Also, water in the dams is lower this year than it was last, meaning less will be available for release to agriculture next year. “Farmers may feel less content by March or April than they do now.”

A decisive, respected, early election a few months from now – whichever way the result goes – would be good news for Thailand if it brings a sense of stability, but there is another stumbling block to come first. The ruling party could be dissolved depending on a decision expected in October on a case of fraudulent misuse of contributions. In the worst case, all executives of the party who were there at the time of the alleged misuse could be banned – and that includes the current prime minister. It’s worth noting, though, that there’s one senior member of that government who would certainly not be dismissed, since he wasn’t in the party at the time: Korn, generally considered clean. Perhaps the former JP Morgan man is a future national leader.

Are foreigners wrong about Thailand? Korn tells Asiamoney that “in stock market, as in politics, perception is key. And perception is obviously very negative for the country, which is hardly surprising given the images that were screened across everybody’s television screens around the world.” But he believes Thailand’s performance under stress is an argument for foreigners to have greater confidence in the resilience of the system. “This was probably the ultimate stress test for the country as a whole. And I think we came through it pretty well: we had a mini-revolution in the country,” he says.

“There are other countries that appear to be stable but have not had to go through that kind of test. Who knows if they could withstand such a level of stress in the same way the Thai system has.” Coming months will show if his message is getting through to foreign capital.