– The Thai economy has suffered from its dependence on tourism and exports
– However, the economy should benefit from renewed global economic activity as tourism resumes and borders reopen
– The Aberdeen New Thai Investment Trust is keeping a balance between cyclicals and long-term growth
The structure of the Thai economy has left it vulnerable to the pandemic lockdowns, but it also puts it in prime position to benefit from the global recovery. This has already started to be reflected in the profitability of Thai companies and the performance of the country’s stock market. The Aberdeen New Thai Investment Trust is poised to take advantage.
The Thai economy faced a number of headwinds over 2020. In particular, its dependence on tourism and reliance on exports hurt at a time when borders have been shut. This has seen the Thai economy, as measured by Gross Domestic Product (GDP), contract by 6.1% in 2020 even though, until recently, the country was only lightly affected by the virus.
This should also mean that Thailand is a key beneficiary of the emerging global recovery. With exports forming around two-thirds of GDP, the opening of the global economy should drive domestic economic activity. Equally, some thawing in the US/China trade war under the Biden administration is likely to improve global trading conditions, which, in turn, will benefit Thailand.
The tourism industry has been hit hard and has faced another setback from the recent spread of the Delta variant across the country, which has seen case numbers, hospital admissions and deaths rise. However, with mass vaccine rollout scheduled for July, the sector is preparing to reopen in phases. Phuket, for example, is still likely to open in July. In the early phases, tourism will be predominantly domestic, and is likely to be dependent on the global vaccine rollout, but any improvement from the weakness of 2020 will be welcome.
The government has kept stimulus packages in place where possible. Some of these schemes have been very successful, such as the co-payment scheme. This has helped Thai families survive the worst of the Covid restrictions and should allow consumption to resume quickly once normality returns.
Overall, the Thai government is expecting growth of 1.5-2.0% in 2021, marginally behind expectations from the IMF of 2.6%. Growth projections for 2022 are far more optimistic, at a robust 5.6%. Once the world starts to put the pandemic behind it, the potential for growth in the Thai economy is significant.
This is already being reflected in the Thai stock market, which had a robust first quarter of 2021, up over 10% in local currency terms, even after an exception fourth quarter of 2020. In common with other global markets, there has been a rotation into more cyclicals and the market’s high weighting in banks and energy has been beneficial. Equally, the market has seen some hard-hit areas such as hotels and retailers recover. Meanwhile, technology stocks retreated following a strong fourth quarter.
At Aberdeen New Thai Investment Trust we have sought to lean into this strength. We have been increasing our weighting to financials, including Kasikornbank and Tisco. Banks should benefit from a shift in the interest rate cycle as economic recovery takes hold. Equally, we’ve brought up weightings in a number of non-bank financial groups such as AEON Thana Sinsap. We also hold Airports of Thailand. While we recognise that tourism may not return to normal this year, the company holds a valuable portfolio of six airports. If tourism starts to re-emerge, there is significant operating leverage.
However, we want to retain a balance between value and growth names in the portfolio. There are risks to the recovery, such as the vaccine rollout struggling to keep pace with new outbreaks and variants. Balancing the higher weighting in banks, energy is at a neutral position after the recent strength. We have some tactical positions in oil exploration companies, but that is the limit of our exposure. We want to ensure that we hold companies whose growth can endure beyond a short-term recovery. That means looking for retailers with an online and offline presence or utilities with a pipeline of new capacity.
In the meantime, the government continues to focus on the vaccine rollout. Thailand has a good supply of vaccines, with over 70 million on order, mainly AstraZeneca and Sinovac with Johnson & Johnson recently approved, though rollout has been slow to date. The country is aiming to build confidence with several high-profile figures taking the vaccine including cabinet ministers and members of the royal family. After a number of outbreaks, there is new urgency from policymakers.
We believe Thailand is in a good position once global economic activity recovers. If that takes longer than expected, the portfolio has a backbone of sturdy growth companies that should provide a ballast in a more challenging environment.
Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
Important information
Risk factors you should consider prior to investing:
· The value of investments and the income from them can fall and investors may get back less than the amount invested.
· Past performance is not a guide to future results.
· Investment in the Company may not be appropriate for investors who plan to withdraw their money within five years.
· The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the net asset value (NAV), meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
· The Company may accumulate investment positions that represent more than normal trading volumes, which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
· Movements in exchange rates will impact on both the level of income received and the capital value of your investment.
· There is no guarantee that the market price of the Company’s shares will fully reflect their underlying NAV.
· As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices – the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
· The Company invests in emerging markets, which tend to be more volatile than mature markets, and the value of your investment could move sharply up or down.
· Specialist funds that invest in small markets or sectors of industry are likely to be more volatile than more diversified trusts.
· Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends, and certain investors may be subject to further tax on dividends.
Other important information:
Issued by Aberdeen Asset Managers Limited, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Registered Office: 10 Queen’s Terrace, Aberdeen AB10 1XL. Registered in Scotland No. 108419. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments.
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Orsen Karnburisudthi is an investment manager at Aberdeen New Thai Investment Trust.
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