The biggest price swings in Thai stocks since the nation imposed capital controls in 2006 are turning Invesco Asset Management and Aberdeen Asset Management Plc into buyers on speculation that corporate profits will weather political turmoil.
The benchmark SET Index’s 90-day volatility has more than doubled during the past year and was twice that of the MSCI Emerging Markets Index last week, according to data compiled by Bloomberg. The last time the gap widened this much, after Thailand imposed investment restrictions to stem the baht’s rally in December 2006, the SET advanced 17 percent in six months and outperformed the emerging-market gauge.
Invesco, Aberdeen and BBL Asset Management, which oversee a combined $1.1 trillion, say market swings caused by anti-government protests and $344 million of foreign outflows this month have created buying opportunities among oil producers and phone stocks. While snap elections called by Prime Minister Yingluck Shinawatra for Feb. 2 may lead to even more volatility, analyst estimates compiled by Bloomberg show SET Index profits will probably climb 21 percent during the next 12 months.
“We have been buying more in Thailand,” Abdul Jalil Abdul Rasheed, a Singapore-based investment director at Invesco, which oversees about $779 billion worldwide, said in an e-mailed interview on Jan. 29. “We are invested in companies, not countries.”
That optimism makes the three money managers stand out among global investors. The SET Index dropped 1.9 percent in January, its third-straight monthly decline, amid a retreat from developing-nation assets that sent the MSCI Emerging Markets Index to its worst start to a year since 2008.
“If you look at the ability to generate profit by listed firms, I think our listed firms are quite resilient,” Charamporn Jotikasthira, president of the Stock Exchange of Thailand, said in an interview with Bloomberg Television. “We’ve already seen foreigners coming back in some sectors, for example the agricultural and export sectors.”
The benchmark SET Index may recover to the level before the political turmoil when it subsides, he said. The measure closed 0.8 percent higher at 1,274.28.
The Thai gauge lost 6.7 percent in 2013 as foreigners sold a net $6.2 billion of the nation’s stocks, the most since Bloomberg began compiling the data in 1999, and the U.S. Federal Reserve signaled its plans to reduce economic stimulus.
The benchmark measure of Thailand’s $335 billion market is valued at 11.4 times estimated earnings for the next 12 months, the cheapest among Southeast Asian peers. The multiple dropped to 10.9 on Jan. 3, the lowest since June 2012.
A measure of the SET index’s 90-day swings reached 21.5 on Jan. 22, versus 10.7 for the MSCI Emerging Markets index. The Thai measure was at 20.3 yesterday.
Yingluck’s administration has faced street demonstrations that protest leaders say are aimed at removing her family’s political influence. Ten people have been killed in clashes between rival political groups and the police since the anti-government protests intensified on Oct. 31, according to the Bangkok Emergency Medical Service.
Allies of Yingluck’s exiled brother, Thaksin Shinawatra, have won the past five elections, including two since his ouster in a 2006 coup. The caretaker government imposed a state of emergency in Bangkok on Jan. 22 as attacks on protesters escalated and demonstrators blockaded the city’s busiest intersections.
Suthep Thaugsuban, a former opposition party politician leading the protests, called for a mass rally on Feb. 2 in Bangkok and nationwide to disrupt the election. He’s vowed to continue blockades in the capital that began Jan. 13 until Yingluck resigns, and wants the government replaced with an unelected council that would change laws to prevent parties linked to former premier Thaksin returning to power.
The prospect of prolonged political deadlock may deter investors despite cheaper valuations, according to Saharat Chudsuwan, a Bangkok-based first senior vice president at Tisco Asset Management Co., which oversees about $4.6 billion.
The Bank of Thailand lowered its growth forecast for Southeast Asia’s second-biggest economy on Jan. 22. The monetary authority predicted gross domestic product will increase by less than 3 percent in 2013. It cut the estimate for this year to about 3 percent from a previous projection of 4 percent on expectations political turmoil will delay government investments and hurt consumer spending.
Tourist arrivals will fall by half to 1 million this month, Minister of Tourism & Sports Somsak Phurisisak said Jan. 23, with some hotels in the capital and nearby resort towns of Pattaya and Hua Hin only 30 percent full. The revenue loss could amount to 22.5 billion baht ($682 million), according to the Tourism Council of Thailand.
“Our clients have been advised to reduce holdings in Thai equities and shift investments into overseas markets such as North Asia and Japan,” Saharat said in an interview on Jan. 22. “Valuations have come down significantly, but they remain unattractive. With the mass protests and state of emergency, Thailand has a very poor outlook for foreign investors.”
Thai stocks have rallied from past periods of political tension. While the SET Index lost as much as 13 percent in four months after military leaders sent tanks to block Bangkok’s Government House and said they’d seized control of the capital in September 2006, the gauge recouped its losses by May 2007. The SET lost 11 percent amid protests in the first half of 2010, then rallied 46 percent in the following 12 months.
Power producers, insurers and energy companies, including PTT Exploration & Production Pcl, have dropped to attractive levels, according to Adithep Vanabriksha, the Bangkok-based chief investment officer at Aberdeen Asset, which oversees about $324.6 billion worldwide.
PTT, a Bangkok-based producer of oil and natural gas, has lost 6.3 percent this year and trades at 9.6 times reported earnings, according to data compiled by Bloomberg. That compares with the median multiple of 20 times for global peers.
Invesco’s Rasheed recommended shares of telecommunication companies and banks. Advanced Info Service Pcl, the mobile phone company owned by Singapore’s Temasek Holdings Pte, has gained 2.8 percent this year after a 4.6 percent drop in 2013. The stock is valued at 14.5 times estimated earnings, down from 17.1 before the protests.
Voravan Tarapoom, the chief executive officer at BBL Asset, said tourism companies will rally when the political crisis is resolved.
The industry rebounded from protests that shut the main airport for almost two weeks in 2008 and turned inner Bangkok into a war zone in 2010. It also bounced back from disasters such as the Indian Ocean tsunami that devastated beach resorts in 2004, and floods in 2011. Overseas travelers to the country jumped 20 percent to a record 26.7 million in 2013, according to the Tourism Authority of Thailand.
The SET Tourism and Leisure Index, which has its largest weighting in Bangkok-based Central Plaza Hotel Pcl, has dropped 21 percent since the end of October and is valued at a 24 percent discount versus its one-year average, data compiled by Bloomberg show.
Some stocks “may already reflect all the negative political factors,” Voravan, who helps to oversees about $10 billion, said by phone on Jan. 29. “Lower share prices offer golden opportunity of high returns for long-term investments.”