Thai and Asian stock markets would be under downward pressure for a while, but Thailand remains an attractive destination for long-term investment, Jason Cox, co-head of Asia-Pacific global capital markets at Bank of America Merrill Lynch, said in an exclusive interview to The Nation.

Though the stock market fell steeply in the past week and the baht also weakened on capital outflows from emerging economies, Cox sees this situation as a technical issue rather than a weakening of economic fundamentals.

“It’s been a difficult few weeks for sure, but I think the same technical factors are obviously impacting all markets in Asia – concern about the tapering off [of stimulus] in the US and the equities outflow,” he said on the sidelines of a “Thailand Focus 2013″ conference hosted by the government last week.

Cox said the fundamentals of Southeast Asian countries varied given the technical backdrop.

Investors have some concerns about economic figures but this is a short-term issue and not a major cause for large capital outflows, he said, referring to the latest economic data on exports and gross domestic product.

The National Economic and Social Development Board reported that the Thai economy was entering technical recession after contracting for two consecutive quarters on a quarter-on-quarter basis. The Commerce Ministry revealed that exports had contracted 1.5 per cent in July, while the Bank of Thailand reported that the current-account deficit in the second quarter was equivalent to 5.1 per cent of GDP.

India and Indonesia have faced more severe capital outflows, partly due to current-account deficits.

While there are some concerns over the slower growth of the Thai economy, the technical issue investors are worrying about is the US Federal Reserve’s tapering off of its quantitative easing, he said. Foreign investors have greater interest in attending the Thailand Focus forum this year as they try to find investment opportunities, Cox said, adding: “Thailand’s fundamental in the long term are intact.”

Thailand has an advantage in terms of regional integration, demographic access and strategic location, being in the middle of new frontier markets – Cambodia, Laos, Myanmar and Vietnam – where growth rates are high, in the range of 7-9 per cent, he said.

The selling off of 15-20 per cent of Thai stocks from their peak in May was not justified considering corporate-earnings projections had dropped only slightly, according to Cox.

Investors have overreacted, he said. Bank of America’s analysts recommend that clients pick up bargain Thai stocks across sectors, including banking, consumer and energy.

The Thai price-to-earnings ratio of 14 times is not much different from the region’s average of 12-13 times. It provides an opportunity to buy as the market has significantly corrected, he said.

Global investors are waiting for the Fed’s decision on when it will start to scale back its stimulus by buying bonds worth US$85 billion (Bt2.7 trillion) a month.

Cox said he expected information on the timeline for the Fed’s tapering to become known in the fourth quarter.

Regarding regional economies, he said each country has different fundamentals. For example, the Philippine economy grew at a high rate of 7.5 per cent year on year in the second quarter. Indonesia has done the right thing as it cut fuel subsidy to address its current-account deficit, he said.

He said it would take time for India to fix its economic woes.

Cox’s view is similar to that of another analyst. In a separate interview, Jimmy Koh, head of research and investor relations of United Overseas Bank, said Asian economies would be able to manage the large capital outflows because of much higher foreign reserves than those during the capital flight of 1997-98.

Moreover, as the market plunges, people are looking for opportunities to buy stocks this time, Koh added.

By Wichit Chaitrong
The Nation

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