Thai Coup: Hardly A Ripple

``The coup has also highlighted some of the fragility inherent in Thailand's social fabric: so very much of the nation's unity and order rests on the shoulders of one remarkable man, His Majesty, the King.”-Andrew T. Foster, Director of Research, Portfolio Manager, Matthews International Capital Management, LLC

As the military led by a group known as “Administrative Reform Council” surrounded the national seat of the Thai Government to successfully topple Prime Minisiter’s Thaksin Shinawatra’s government, there had been widespread speculations as to extent of the impact of such political development to the regional financial and economic sphere.

One major distinguishing factor that has so far contributed to the triumph of the changeover has been that the military group, who were seen adorned with yellow ribbons meant to demonstrate their loyalty to Thailand’s monarch, His Majesty King Bhumibol Adulyadej, had apparently the blessings of Thai King itself. In short, two possible scenarios emerge: it could be possible that perhaps the King himself impelled for PM Thaksin’s overthrow, or King Bhumibol Adulyadej could have simply endorsed the coup d'état to give legitimacy and avoid further deterioration of events.

Many pundits have thrown their opinions as to the possible repercussions. A surprisingly big number of analysts, mostly from foreign institutions-gleaned through Bloomberg’s interviews, have said that this opportunity could signify a “screaming buy” given that the present political impasse would be disentangled given the makeover. Some like those from Morgan Stanley downgraded their Thai outlook.

In the past I have noted that domestic volatility have markedly ebbed as global markets have slowly integrated...

Figure 1. Yahoo: US/THB; stockcharts.com Thailand’s SETI

As figure 1 shows so far the impact has rather been muted. The Thai baht lost a measly .4% while most of damage was seen via the SET or Thai’s main equity benchmark down 2.7% over the week. Thai bonds even rallied over the week.

To give it a more balanced perspective, Asian currencies have been largely down led by Indonesia’s rupiah down .7% according to Bloomberg, while the Philippine Peso closed .18% to Php 50.35, Malaysia’s ringgit fell .1% to 3.675 and Singapore Dollar S$1.5853. In short, there had been other factors driving the region wide currency declines more than simply the Thai upheaval. This in contrast to the equity benchmarks which were mostly up except for the biggest loser in the Thai’s SET.

For as long as the Thai incident would remain contained, orderly and peaceful, we are unlikely to see a contagion effect towards other the ASEAN nations which I view as rather low impact low probability event. In contrast to the Asian Financial Crisis in 1997, where structural infirmities such as pegged currencies, massive deficits and mountain loads of external or dollar denominated debts gave way to simultaneous capital flight, today’s ASEAN economies appeared to have learned from the past and have adopted a more flexible stance.

As for General Sonthi Boonyaratkalin leader of the coup, like the JRR Tolkien masterpiece the Lord of the Rings, we will see if he will be consumed by the power he arrogated upon himself (what I call “personality based politics”) or indeed stay loyal to the cause of the King and permit for a transition government. By the way, coup has been a way of life for the Thais; this has been the 18^th during the past 60 years for the Land of the Smiles!

Finally, I’d like to make a short comment on the observations of a very high profile contemporary, who made a ‘rationalization’ that Thursday’s decline at the Phisix had been due to the Thai coup. Our expert analyst simply parroted what the average investor would have thought. However, being an analyst, I guess I’d be responsible enough to point out that in spite of the impression of so-called “foreign-investors-pulling-out-of-ASEAN” due to the Thai development, internal market data showed that foreign buying heavily supported the Phisix in nominal and in broad market terms, which simply belies this claim. Further, Ayala insiders or the Zobel group represented by MERMAC sold 6.9% or Php 10.56 billion worth of AC shares to a foreign group on a special block sale also during that fateful day. So listen to your high profile analyst, who is after all, not after the truth, but for publicity (smiles!).