Overseas Investors Pulling Money from Thai Stocks

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BANGKOK – Foreign funds sold a net $514 million of Thai equities last month, more than five times as much as from the Philippines, with the bulk of the outflows following the Oct. 13 passing of King Bhumibol Adulyadej, who had been the source of political stability within the country.

While the SET Index has recovered most of its losses from a plunge in the days before the 88-year-old monarch passed away, valuations remain a concern at a level 22 percent above the 10-year average.

The yearlong mourning period and royal transition threaten to restrain economic expansion, according to Capital Economics Ltd. and Nomura Holdings Inc., while Asian airlines and tour operators said that they’re expecting a slowdown in travel to Thailand. The country’s growth rate trails behind its Southeast Asian peers and hasn’t exceeded 3.5 percent since the start of 2013.

“Thailand’s economy hasn’t been in the pink of health,” said Jen-Ai Chua, an analyst at Bank Julius Baer in Singapore. “The king’s passing has exacerbated concerns about the economy.”

The Thai outflows are the most since December 2015 and compare with net selling of $174 million in Indonesia and $94 million in the Philippines, exchange data show. Some 294.3 million ringgit ($70 million) was pulled from Malaysian shares last month through Oct. 28, according to MIDF Amanah Investment Bank Bhd. Foreign funds pulled $310 million from Thai sovereign bonds in October, also the most since December 2015, while the baht weakened 1.2 percent.

The SET Index plunged 6.5 percent in the three days before the king’s death before recovering 5.1 percent in the next two sessions. The gauge finished the month with a 0.8 percent gain, and is up 17 percent this year, the second-best performance among Southeast Asian emerging markets after Indonesia. A gauge of the region’s stocks dropped 2 percent in October, the most since May, as the chance of a Federal Reserve rate hike this year increased.

The Thai benchmark equity measure closed 0.6 percent higher on Tuesday.

Election Timetable

Thai Prime Minister Prayuth Chan-Ocha has said that Crown Prince Maha Vajiralongkorn has requested a delay in taking the throne to mourn his father along with other Thais. Elections, currently slated for late 2017, won’t be pushed back because of the king’s passing, said Prayuth, who took power in a May 2014 military coup.

Growth in 2016 is unlikely to be more than 0.1 percentage point, however if there’s renewed political unrest that could cause the economy to quickly spiral downward, Capital Economics said in a note released Monday.

There’s downside risk to Nomura’s 3 percent economic growth forecast for 2017, the Japanese lender said in an Oct. 14 note. The economy is going through the transition on a very fragile footing as continuous political change has left much to be done in terms of structural reforms to address the aging population and falling labor productivity, Nomura said in the note.

“The Thai stock market will be unexciting given the sluggish economy,” said Song Seng Wun, a regional economist at CIMB Private Bank in Singapore,. “We have seen fairly subdued domestic consumption in Thailand because of the drought earlier in the year and with the king’s passing we will have an even quieter period of economic activity.”

Thailand’s gross domestic product increased 3.5 percent in the second quarter, trailing growth rates of 4 percent in Malaysia, 5.18 percent in Indonesia and 7 percent in the Philippines.

“Sentiment in the country will remain weak for the short term,” said Jalil Rasheed, a Singapore-based fund manager at Invesco Asset Management. “We’ll take advantage of market mispricing to buy more when there’s any weakness.”

While tourism will slow during the period of mourning, the drop is unlikely to be significant, he added.

Foreign funds have still pumped a net $3.3 billion into Thai stocks this year amid a rally in emerging-market assets. That helped push the SET Index’s price-to-earnings ratio to as high as 16.7 in August. Valuations have since dropped to 15.6, still well above the 10-year average of 12.8.

“We’re trimming our positions as valuations are starting to look expensive,” said Kar Tzen Chow, a Kuala Lumpur-based fund manager at Affin Hwang Asset Management Bhd., which oversees $7.6 billion. “There’s some uncertainty following the death of the king.”

By Jonathan Burgos joubertburgos | Bloomberg