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Modest/uneven economic growth Dilemma in financial system Globalization to impact investment flows Increasing industry consolidation Selective investment.

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Presentation on theme: "Modest/uneven economic growth Dilemma in financial system Globalization to impact investment flows Increasing industry consolidation Selective investment."— Presentation transcript:

1 Modest/uneven economic growth Dilemma in financial system Globalization to impact investment flows Increasing industry consolidation Selective investment opportunities Stockmarket Outlook Thailand : Economy and Stockmarket 13 November 2000

2 2 Thailand Economy : Modest growth ahead As the Bank of Thailand sees it :- GDP Growth of % in 2000 and % in 2001 Core inflation of % in 2000 and % in 2001 Export growth of 15-20% in 2000 and % in 2001 Import growth of 28-32% in 2000 and 10-15% in 2001 A CA surplus of US$9-10bn in 2000 and US$6-8bn in 2001

3 3 Quarterly Economic Performance

4 4 Economy : Reasons to be cautions on growth There are several reasons why economic growth could disappoint :- Nominal growth rates are very low by historic comparison (no chance to “grow” out of trouble) Deflationary pressures FDI flows are sluggish Limited room for the government to borrow further Continued weakness in the banking sector Corporate loan demand is constrained (leverage/int.rates) Government has talked reform, but implementation weak US economic landing may not be soft High oil prices Weak Euro has hit purchasing power in Euro-land On this basis, we are more comfortable with 4% rather than 5.5% growth in 2001

5 5 Economy : Growth is patchy ……... There are undoubtedly bright spots :- Exports are strong (+22% ytd) Vehicles sales have jumped (+30% ytd) Mobile phone sales are buoyant (+35% ytd) Electricity consumption is rising SET earnings are improving Significant refinancing of US$debt with Baht debt But look at :- Industrial Capacity Utilisation (58% in September) Manufacturing production fell 0.5% YoY in 3Q Cement sales fell 11% YoY in 3Q Commercial Bank credit (ex-BIBF) fell 9.4% YoY to September Passenger car sales rose 2% YoY in 3Q

6 6 Economy : …. And likely to stay that way The scope for the current economic recovery to broaden appears limited Government borrowing levels are high (and an election is imminent) Consumer confidence is still lacking (dampened by low agricultural prices and limited job creation in manufacturing/construction) Bank deposit rates are low Investment is subdued, though there is scope for a modest acceleration in 2001 For the foreseeable future, growth drivers will remain :- Manufactured exports Tourism Vehicle (manufacturing) Telecommunications Petrochemicals

7 7 The Financial System : A major dilemma Still high levels of NPLs Domestic banks under-capitalised to clear bad debts (encourages delaying tactics) Restructuring focused on large companies. Infrastructure for delivery of loans to SMEs is (to say the least) inadequate Bankruptcy laws still weak Democrat government opposed to national AMC, yet few alternatives Scope to revive bank lending (an engine for economic growth) is limited High bank spreads have failed to restore shareholders equity (and borrowers have suffered) Limited scope to lower deposit rates (politically sensitive) Tax regime discourages M&A activity

8 8 Non-Performing Loans : Bank Sector

9 9 Globalization to Impact Investment Flows Capital allocation to follow “Western” norms Profile of emerging markets in portfolio flows is also changing IT revolution changing nature of competition Increasing importance of (western) standards of corporate governance International standards of fiscal/monetary management Thailand scores badly on corporate governance (but is not alone in this regard in Asia) Thailand scores well on monetary management (shift to inflation targeting), but less well in fiscal management Thailand is a proven destination for outsourcing assembly/manufacturing, but scope to attract services seems limited Continuing concerns over education, corruption, politics Investors will focus on core competencies (such as export assemble, tourism)

10 10 Industry Consolidation : Making the strong stronger Thai industry needs to consolidate if it is to be competitive in a globalised / liberalised market There is evidence of consolidation in the Thai market place :- The string of collapses in the banking and finance sectors Superstores gaining market share in the retail sector However, Thai tax laws stand in the way of M&A activity Foreign ownership laws still prohibitive Consolidation is on the (immediate) horizon in steel, cement and petrochemicals

11 11 Thailand : Investment Opportunities Lack of investor interest in Thai stocks is hitting the prices of both fundamentally sound and unsound companies Select companies are fundamentally undervalued absolutely and relatively Thailand does have companies that aspire to international standards of competitiveness and corporate governance. These include Shinawatra Group, Siam Makro, BEC World, Hanna Microelectronics and Delta Electronics There are growth segments in the economy and companies growing within these segments. Exporters are well placed to grow, as are the superstores as they expand into upcountry markets. There are companies gaining market share in segments which may themselves be (temporarily) depressed There are companies which are emerging from fundamental problems, where the recovery is not being recognised by the market.

12 12 Thailand Stockmarket : Outlook Volatile nearterm (election uncertainty and external +/- against a sluggish domestic economic backdrop) Scope for recovery in 2001 (driven by “value”, political stability, lower oil prices, an easier monetary policy in the US and a (hoped for) soft landing of the US economy, supporting a positive external environment for Thai exports) Risks are an unsatisfactory election outcome, a hard landing by the US economy, slowing economic growth, domestically, and deteriorating bank NPLs

13 13 Thailand Stockmarket : Foreign Investor Activity Foreign premia stabilising Worst of foreign selling may be over MSCI re-weightings (based on free float) will likely be marginally negative for Thailand

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