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Strong headwinds for the Thai market

This year has been challenging for Thai equity funds as the domestic market faced downward pressure from China's economic slowdown and continuing political uncertainty.

A military coup last year made investors cautious on Thai stocks and in 2015, Thailand’s stock market fell into negative territory right about the time China’s retail-driven stock market began to correct. Year-to-date, Thailand is still negative but has performed better than Singapore.

Other factors are also at work. Thai companies involved in production and construction were hit by low oil prices and China’s economic slowdown.

Oil and gas producer PTT Exploration and Production reported a net loss of $1.28bn in the third quarter following a sharp drop in oil prices while Siam Cement’s healthy margins from chemical sales were offset by inventory and foreign exchange losses, according to recent quarterly reports from the companies.

Thailand’s steel producers were impacted by a slowdown in sales due to Chinese steel plants offering similar products at lower prices.

A survey of Thai equity funds to December 4 shows that the top performing fund, Aberdeen Thailand Equity, has a trailing three-year return of 6.39%. The second best performing fund, JP Morgan Thailand has a 0.43% return. All other Thai equity funds had negative returns.


Non-performing loans pose a problem

Slow economic recovery has severely hindered the debt-servicing ability of businesses and households. OCBC Bank noted that it is “startling” that the non-performing loans in commercial banks have risen to the highest since 2005, while household debt now exceeds 80% of GDP.

Most recently, Sahaviriya Steel Industries, the Bangkok-based operator of Southeast Asia’s largest flat-steel manufacturing facility, defaulted on loans worth a total of $1.4bn.

The default has filtered into the banking sector, affecting Siam Commercial Bank, Krung Thai Bank and Tisco Financial. According to Moody’s, Siam Commercial Bank would have to allocate approximately $280m of provisions to account for Sahaviriya Steel’s bad debt. Krung Thai Bank and Tisco Financial are in a similar position, according to a Reuters report.

Aberdeen Asset Management noted in a disclosure: “Rising non-performing loans and provisions started to affect our bank holdings as earnings declined for Siam Commercial Bank, Kasikornbank and Tisco Financial.”

Aberdeen AM said that while non-performing loans and provisions are a concern, other sectors such as retail is faring well.

Commenting on its holdings, the firm said: “Home Product Center reported growth driven by resilient sales, rentals and vendor promotions, while Tesco Lotus Retail Growth was buoyed by healthy rental and service income.”

LionGlobal noted that Thailand’s reshuffled cabinet has announced stimulus measures and pledged to speed up infrastructure spending to help revive the economy.

“Over the medium to longer-term, we remain positive on the potential of Thailand and the opportunities for Thai companies in the Indochina region,” the firm said.

Part of the Mark Allen Group.