With the importance of politics to developing nations it is interesting to note the similarities between Thailand and the UK. Both countries have a constitutional monarchy; have similar population sizes; were never colonized; and are democratic. On the economic front there are further similarities with the two nations experiencing recessions, on account of the global downturn, and therefore currently have very low interest rates.
Unlike the UK, though, Thailand’s downturn was not of its own making as it was triggered by a slump in demand from its major trading partners - the US and Japan. Growth returned in early 2009 and forecasts are now for a GDP increase by 3-3.5% in 2010. A recovery in confidence has seen stocks rebound with an increase in values of 60% in the year to November. Improved political stability and a return to economic growth will ensure, in our view, more is yet to come.
It would be remiss to look at Thailand and only consider its economic progress. After all, emerging nations have emerged largely due to politicians carrying out programs of economic liberalization. Furthermore, political stability is also a good end in itself in order for a country to attract investment and foster growth.
Current Thai Prime Minister Abhisit Vejjajiva offers the promise of stability and his focus on better governance looks set to leave the country in a much stronger position. This is important as the rule of law, together with enshrined private ownership rights, is a key reason emerging markets have prospered.
In order to restart the economy Vejjajiva has implemented a huge fiscal stimulus package of 1.06 Trillion Bhat (US$32bn) to be spent over three years. Nevertheless, Thailand’s export focus will mean that sustainable growth is dependent on the country’s major trading partners - US, Japan, China and Singapore - not experiencing a double-dip recession.
In the meantime the return of investor confidence is promising with capital flows to the country becoming positive again in July of this year. With regard to the stock market investors purchased net 32.2 billion baht of Thai stocks in the eight months between January and August 2009. This compares with sales of 97.5 billion baht in the same period in 2008. Interest rates are currently 1.25%.
In the six months to August, Aberdeen New Thai It jumped by 33% although the index it is trying to outperform - SET (Stock Exchange of…
