Economic rebound

What a difference a few months has made in the case of Thailand. With anti-Government protests, which started in March, forcibly ended in Mid-May the economic outlook now looks robust. In fact growth forecasts for the full year have recently been revised up on the back of a jump in exports. Accordingly, we rate the Thai Fund a hold.

Our decision to stick with Thailand despite recent political turbulence has so far paid dividends. In fact looking at recent economic forecasts it would be hard to find much evidence that the political protests had even occurred. As such our holding in Thai Fund has powered ahead rewarding long-term investors.

As a reminder, the protests against the Government lasted for around two months and were only ended after the police and the army forcibly broke them up. The protestors were seeking new elections because the current Prime Minister hadn't been directly elected.

The demonstrators also believe that the current ruling faction is only in power on the back of army support and doesn't represent the interests of the country's poor. However, critics view the movement as mainly to support the interests of Thailand's former populist leader.

A key concern for investors is what will happen when the next elections are due. A populist Government might not enjoy the support of the army which could throw the country back into a state of unrest.

However, our view is that present Prime Minister, Abhisit Vejjajiva, handled the protests well showing patience and a sincere effort to achieve conciliation. The offer to the protestors included an election later in the year and it was initially accepted.

However, more conditions were then made by the demonstrators which meant the deal collapsed. In our view this chain of events undermines the credibility of the protest movement and suggests it was only interested in overthrowing the Government. The movement looks set to lose some support because of this which should ensure Thailand moves towards greater stability in future.



Looking at the weekly chart of the Thai Fund we can see that the share price is in a strong uptrend that has recently surged higher through resistance at $10. This move has seen the price break above both the 39 week and 200 week moving averages. The weekly MACD is giving a bullish signal that suggests the uptrend will continue.



Looking at the daily chart of TTF we can see the sharp move higher that smashed through resistance at $10. A pullback to test the $10 level as support is a possibility but we would expect to see a continuation of the move higher towards potential resistance at the $13.50 level.

Turning to the economic performance of the country and a strong rise in exports rise has lifted growth markedly. In May of this year the key Thai planning authority forecast growth of 3.5% to 4.5% for 2010 but has recently raised this figure to 7%. Exports make up 60% of the economy and have recently experienced a surge of 20%.

This compares to a contraction in the economy of 2.2% in 2009 which was the weakest growth since the 1998 Asian financial crisis. Despite the relatively strong growth inflation remains subdued with the core measure forecast between 0.5 and 1.3 percent for 2010.

The protests clearly had an effect on the country and the second quarter is expected to see the economy contract on the prior quarter. However, the output in the second quarter is still expected to be up 7% on a year ago while the growth for the first half of 2010 is forecast by the Central Bank to come in at 10%. This is largely due to robust growth in the first quarter of the year.

Thailand's resilience is perhaps not surprising given that tourism is only 6% of GDP but even here the performance for the whole of 2010 is likely to show growth. Forecasts are for 14.5m visitors during the year against 14.1m in 2009.

Exports weren't the sole driver of growth as the stimulus package put in place last year helped drag the economy out of recession. Nevertheless it is the resilient nature of the country’s export markets which have been a key driver for the Asian nation.

Exports for the year as a whole are forecast to rise by 24.5 to 27.5 percent this year. As such the current account surplus is seen coming in at between $11bn and $14bn in the $264bn economy.

The danger is that a strengthening Baht could upset this export led growth with the currency reaching two-year highs against the dollar. There is also the risk that export markets could weaken with the Federal Reserve lowering growth expectations for the US, Japan producing anaemic growth of 0.1% in Q2 and China seeing second quarter growth slow.

Although these are headwinds for the export sector it should be remembered that China and India are still growing strongly year-on-year. This ensures that demand for Thai goods from these countries also grows notably from one year to the next.

With growth set to reach as much as 8%, according to one forecast, this year the Thai economy is clearly surmounting its recent political troubles. As such it is no surprise that the Thai stock market is performing strongly. For the long-term investor the country remains an excellent way to get exposure on the growth of the Asian region.

The smaller Asian countries are benefiting from growth of their larger neighbours as firms look for new bases where wage growth has yet to take off as it has in China and India. Thailand also benefits from being a democracy - of sorts - which should provide long-term stability even if in the short-run the country appears unstable.

Accordingly, the Thai Fund will remain firmly held in the Fat Prophets portfolio.