Thai Investing: More Thrills Ahead?

The past 12 months have been an annus mirabilis for investors in Thai equities. For the year ended Sept. 30, the Stock Exchange of Thailand index finished up 73.51% in baht terms, or 86.72% when the results are converted to dollars. With gains like that, it's easy for investors to think they've missed the boat. But analysts remain bullish. "Things still look good," says Andrew Stotz, head of research at ING Securities Ltd. in Thailand. "With price-earnings ratios at 10 times next year's earnings, Thailand still doesn't look expensive."

Stotz's position gets to the heart of the Thai question. When Thai stocks reach their cyclical peaks, they generally trade at around 23 times earnings. On that basis, the punch bowl at this bash is less than half full. By any measure, though, 73% is a monster runup. And if the Bangkok exchange starts tumbling, you don't want to be there.

But if your appetite for risk is ample, you may still want to try out Thai equities. In that case, your first stop should be Fidelity Investments, which manages the top-performer in BusinessWeek's annual survey of the 500 largest offshore funds. Fidelity Funds Thailand gained 87.86% for the year ended Oct. 1, and 16% over five years.

Fidelity has had plenty to work with. Thailand today is supported by robust economic growth, stronger corporate balance sheets, and a major shoring-up of the banking system since the collapse of the baht brought it to its knees in '97. Prime Minister Thaksin Shinawatra has shrewdly used public funds, loose consumer credit, and low rates to kick off a big recovery. Ac-cording to the World Bank, the Thai economy will grow 5.8% in 2003 and 6% in 2004, on the back of strong consumer spending.

A lot of the spending is on new housing, which is getting a boost from low mortgage rates and tax breaks for home buyers. Fidelity Thailand is heavily invested in the boom. According to Standard & Poor's, its main holding is Siam Cement Public Co., representing 10% of the fund's portfolio. Julian Lau, portfolio strategist at Fidelity Investments Management Ltd. in Hong Kong, acknowledges that the $360 million Thai fund has made heavy bets in property and construction materials and in major banks and brokerages.

Some investors consider the high-flying Thai market too big a risk. Chakara Sisowath, managing director of investment firm Comgest Far East, says that only 1% of its Comgest Asia fund is invested in Thai equities. "We are a little bit nervous," he explains. "A lot of Thaksin-omics is based on increased consumption, but it seems that a lot of that has been done on credit."

Others see lots of ripe fruit left to pick. ING's Stotz favors banking stocks. Joshua Tay, manager of the the $180 million, third-ranked JF Thailand fund, which turned in a 12-month return of 81.33%, is bullish on energy stocks PTT Public Ltd. and PTT Exploration & Production.

What's coming up? A series of initial public offerings, including the sale of part of the government stake in Thai Airways International Public Co. That deal was shelved several times because of poor market sentiment. The decision to go ahead could augur well for the continued strength of one of the world's hottest markets. Just watch out when things cool off.

By Frederik Balfour in Hong Kong

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