Bloomberg News

Mobius Optimistic on Thailand’s Shares as Goldman Says Sell

June 10, 2011

(Updates with today’s gain in fourth paragraph.)

June 10 (Bloomberg) -- The biggest stock-market tumble worldwide hasn’t dented Mark Mobius’s optimism for Thailand, even as Goldman Sachs Group Inc. and Credit Suisse Group AG advise cutting holdings on concern next month’s election will spur political turmoil.

“We continue to believe that the market looks attractive,” Mobius, whose $17.5 billion Templeton Asian Growth Fund beat 92 percent of peers in the past 12 months and held 21 percent of its assets in Thai stocks at the end of April, said in e-mailed comments to Bloomberg News yesterday. “We must remember that Thailand has been the subject of political turmoil” for eight decades, he said.

The benchmark SET Index lost 5.3 percent in June through yesterday as foreign investors sold $602 million of shares on concern the July 3 national elections will revive political tension that sparked violent protests last year. Goldman Sachs cut its rating on Thai stocks to “underweight” on June 7, while Credit Suisse advised reducing lenders and tourism-related holdings the same day. Both banks cited the election, along with stock valuations and faster inflation in Southeast Asia’s second-biggest economy.

The SET index climbed 0.3 percent to 1,020.37 today for the biggest gain among emerging markets in Asia.

Emerging-Market Boom

Prime Minister Abhisit Vejjajiva’s Democrat party faces opposition from the Pheu Thai party, led by the sister of Thailand’s former leader Thaksin Shinawatra. Thaksin was ousted in a 2006 coup and has lived abroad since fleeing a jail sentence for abuse of power three years ago. Demonstrations against Abhisit’s government last year left more than 90 dead.

Mobius, who oversees about $50 billion as the Singapore- based executive chairman of Templeton Emerging Markets Group, said periods of political turmoil haven’t caused “long-term” selling of Thai stocks because investors have become accustomed to conflict after more than 25 prime ministers, 18 constitutions and 11 successful coups since 1932. Thailand’s economy is “sound” and agricultural exports including rice to fast- growing Asian nations will help drive growth, he said.

“Thailand is poised to benefit from a continued boom in emerging markets,” said Mobius, without specifying which industries or companies he favors. “We remain optimistic on Thailand as a long-term investment destination.”

The 74-year-old investor declined to comment on whether Templeton has been buying or selling Thai stocks, according to Mae Loon, a spokeswoman in Singapore.

Goldman Downgrade

The SET index has risen for two straight days after a seven-day slide that dragged the gauge to the lowest level since March 18. The index is still up 33 percent during the past year, the fourth-best rally among benchmark equity indexes in 21 major emerging markets tracked by Bloomberg. The MSCI Emerging Markets Index has gained 25 percent in the period.

The outperformance of Thai stocks is probably ending as the economy slows, inflation accelerates and political risk deters investors, according to Timothy Moe, a Hong Kong-based strategist at New York-based Goldman Sachs. Moe recommended boosting holdings in Malaysia and Indonesia in a June 7 research report.

Thailand’s banks, property companies and tourism-related stocks are most vulnerable to revived concerns over politics, Dan Fineman, an analyst at Zurich-based Credit Suisse, wrote in a research note. Political instability has cost the country between 1 and 2 percentage points of annual gross domestic product growth, according to Credit Suisse estimates.

“Many in the market underestimate the economic and market importance of politics in Thailand,” Fineman wrote.

‘Key Factor’

The SET index dropped 1.3 percent in the four weeks before parliamentary elections in December 2007 and sank at least 9 percent in the four weeks following the vote. In April 2006, when opposition parties boycotted the election, the gauge dropped 2.6 percent in a month before the vote, then climbed 4.8 percent the following month.

“The election will be a key factor,” Bank of Thailand Governor Prasarn Trairatvorakul told reporters yesterday in Bangkok. “We have to see whether the situation will be calm after that. But in general, businesses should continue as usual and growth should be in line with the forecast.”

The economy will expand 4.1 percent this year, down from 7.8 percent in 2010, according to the central bank. Rice exports from Thailand, the world’s biggest supplier, jumped 67 percent in May, the Thai Rice Exporters Association said on June 7. Shares of Bangkok-based Charoen Pokphand Foods Pcl, the nation’s largest food producer, have jumped 61 percent in the past 12 months.

Price Controls

The Bank of Thailand raised its benchmark interest rate for the fourth time this year on June 1 to damp inflation that jumped to a 32-month high in May.

Abhisit has capped diesel tariffs and applied price controls to items such as eggs and cooking oil. He promised to raise the minimum wage by 25 percent, give cash to the elderly and guarantee farmers’ incomes to appeal to voters loyal to Thaksin.

Yingluck Shinawatra, the sister of Thaksin and leader of the Pheu Thai party, favors letting prices of consumer goods move freely, she said in an interview this week. Pheu Thai is the latest incarnation of parties loyal to Thaksin that have won the past four elections, with the last three results being overturned by court rulings and the 2006 coup that removed Thaksin from power.

Pheu Thai would win 43 percent of the vote if elections were held now, compared with 37 percent for the Democrat party, according to a Dusit Poll that surveyed 4,694 people from May 23 to May 28.

Lower Valuations

The risk of political turmoil resulting from the election may already be reflected in equity valuations, according to Andrew Stotz, a strategist at Kim Eng Securities (Thailand) Pcl, the nation’s largest stock brokerage.

“It’s too late to downgrade,” Stotz said in an interview on Bloomberg Television yesterday. “We’ve come down a lot.”

The SET index is valued at 11 times analysts’ earnings estimates for the next 12 months, down from 12.5 times in April and within 1 percent of the lowest level since July, according to data compiled by Bloomberg. The ratio is about 5 percent higher than the five-year average, the data show.

“For value investors like us, current valuations remain attractive,” Mobius said.

--With assistance from Tony Jordan, Daniel Ten Kate and Suttinee Yuvejwattana in Bangkok and Rishaad Salamat in Hong Kong. Editors: Stephen Kirkland, Darren Boey

To contact the reporters on this story: Michael Patterson in London at mpatterson10@bloomberg.net; Anuchit Nguyen in Bangkok at anguyen@bloomberg.net

To contact the editors responsible for this story: Gavin Serkin at gserkin@bloomberg.net; Darren Boey at dboey@bloomberg.net


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