Aberdeen New Thai Investment Trust - Growth amidst turmoil

Political protests may grab the headlines but for the Thai economy, the opening quarter of 2010 has been about a strong economic recovery on the back of strong export demand.  Whilst the political situation has detracted from this, the recent share price performance of Aberdeen New Thai It (LON:ANW) has very much taken note. 

Economic growth during the first quarter of 2010 came in strongly at 12% - the highest quarterly rate in 15 years. And whilst a downward revision of sorts was inevitable, the Thai Central Bank is now forecasting growth between 4.3% and 5.8% for 2010. A growth rate which is not dramatically lower than a World Bank forecast of 6.2% before the political crisis.

It is clear that domestic demand will be affected in the short-term as tourism and retailers suffer. However, fortunately the past few months do not constitute Thailand's peak tourism season.

It should be noted though that the Thai economy is very export dependent with exports making up around two thirds of gross domestic product. Thus it is less dependent on domestic consumption than other major economies and should therefore continue to do well as export markets grow.

Furthermore, according to the Commerce Ministry exports were not affected by the political unrest as sea ports and airports remained open.  In our view this could well provide a positive surprise for investors as the political situation may have less of an impact than predicted. It also means that investors in Thailand should focus on the growth of Thailand's major trading partners rather than exclusively on domestic issues.

For the year ahead Thailand has targeted export growth of 14% and the first four months have already produced a rise in exports of 32.5% year-on-year. The largest export market is the ASEAN (Association of Southeast Asian nations) countries followed by Japan, the EU and then the US. The majority of exports to Europe go to Germany and France which mitigates the effects of the downturn at Europe's periphery.

Strong growth will also come from exports to China which has recently signed a free trade agreement with ASEAN. In the first quarter exports to China rose by 70% and for the year ahead the increase is expected to be 25% which compares to a 0.4% decline in 2009.

In the longer-term how the political drama plays out will be important for Thailand's economy. The current Government appears to be well managed with campaigns against corruption and important reforms. In addition, Thailand remains the second largest economy in Southeast Asia (coming after Indonesia) and will benefit from China's growth and the West's economic upturn. Countries like Thailand will also benefit as low-cost manufacturing moves away from China as wages increase. As far as the Aberdeen New Thai Investment Trust is concerned, during the first quarter of 2010 most of the stocks held by the Trust produced robust financial results.  In addition, the discount to asset value has been as much as 20% in recent times ensuring a good margin of safety for the investor.