“Thailand is staring into the abyss,” says The Independent. Clashes between security forces and protesters in Bangkok have caused over 70 deaths since March. This week the army broke up the protest in Bangkok, and violence flared elsewhere. Former prime minister Thaksin Shinawatra warned the crackdown could lead to an insurrection.
This is the latest episode of a long-running clash between the pro-Thaksin rural and urban poor (the ‘red shirts’) and the military and royalist establishment. The red shirts insist on fresh elections, as Thaksin was kicked out in a military coup in 2006. After Thaksin’s allies won a 2007 election, establishment forces undermined that government using a combination of legal challenges and street protests. The current pro-establishment government then took over without being elected.
Political turmoil has begun to affect the economy. Tourism, which accounts for 6% of GDP and 15% of the workforce, has been shaken and “Thailand’s ability to attract and retain foreign investors has been severely damaged”, says Sarah Danckert in Australia’s Business Spectator. If clashes continue GDP growth could be cut by up to 2%, notes Kasikorn Research. This year’s official forecast is 4.5%-5%.
Investors are rapidly ditching Thai stocks. The benchmark SET index has barely risen since 1 January. Many point out that the market is among the cheapest in Asia on a p/e of only ten – although we’ve heard that quite a few times over the past few years.
The market has been hampered by political risk for a long time now: it has risen only marginally since 2005, while the Asia ex-Japan index has gained around 50%. This underperformance looks likely to endure. Once this bout of violence ends, “the underlying social and political tensions will not have been resolved, and they will come up again”, says Josh Kurlantzick of the Council on Foreign Relations.
With no long-term resolution in sight, we’d stick to other parts of Asia for now. See Cris Sholto Heaton’s free weekly email MoneyWeek Asia for some recent ideas.