Take Advantage of the Thai Coup d’état

September 19th, 2006

September 19, 2006 -

Thailand has one of the cheapest stock markets in all of Asia, and it’s about to get even cheaper. Currently I’m in Bangkok and yesterday, after weeks of verbal grenades and strategic maneuvering that pitted the Thai Prime Minister against the Thai military, factions opposed to Prime Minister Thaksin Shinawatra staged a coup last night to oust him. Even before the coup, Thais have been largely split in their support and criticism of Prime Minister Shinawatra.

PM Shinawatra has been largely supported in rural areas, where the rural poor have viewed Shinawatra as an ally to their cause because of numerous programs he has enacted to aid them. However in urban circles, much criticism has been directed at Shinawatra. In fact, Thai media mogul Sondheim Limthongkul, head of Manager Media Group, has been a thorn in Shinawatra’s side for months on end now, staging highly public rallies and speeches that were harshly critical of his former friend and sometimes attended by tens of thousands of people. Ironically, the fortunes of Manager Media Group were once said to have turned for the better due to Limthongkul’s friendship with Shinawatra.

However, after relentless criticism by Limthongkul, in which he has criticized Shinawatra as dictatorial and corrupt, their friendship has no doubt degenerated to a point that is now beyond repair. In fact, just about a year ago, a popular TV show hosted by Limthongkul was taken off the air by Channel 9, a government controlled TV station. This was followed by Bangkok court-issued gag orders that demanded Limthongkul’s criticisms of Shinawatra cease (which I’m sure to Americans, sounds eerily familiar as U.S. Vice President Dick Cheney has at times commented that criticisms of the U.S. administration’s policies in Iraq “validates the strategy of terrorists”).

The public sniping between Thaksin and his opponents reached a peak when he sold Shin Corporation, which many Thais view as a national asset, to a Singapore company for 73 billion Baht (roughly USD $1.97 billion), claiming that he did so only at the urging of his children and to avoid appearances of conflict of interest in the future. In fact I strongly believed back then that the reason the U.S. dollar had been strengthening against all Asian currencies for six straight weeks except the Thai baht was due to the PM’s huge multi-billion position in Thai Baht. If you click here, you can read the ludicrous explanations given by the Bank of Thailand for the baht’s continuing strength as the lone Asian currency defying global trends in Asia. In any event, the public sniping became so bad at this point that Thaksin appealed to the most revered King of Thailand, stating that he would step down if the King asked him to do so. The infighting continued with an alleged attempt on Thaksin’s life recently.

However, many believed the attempt to be fabricated by Thaksin so that he could gain control of the Thai military (the story circulating in Thailand was that the military was involved in the alleged attempt on Thaksin’s life. Thaksin, in response, sought to replace many top military personnel with his own people - moves that received strong opposition internally in the military).

Finally, this power struggle culminated last night with the coup. Martial law has been declared, a night curfew is being enforced, and the constitution has been suspended. Already the leaders of the coup have met with revered King Bhumidol Adulyadej and declared their loyalty to him, though the King has yet to publicly declare his position regarding the coup. Furthermore, soldiers in Bangkok are patrolling the streets wearing yellow armbands in their declaration of loyalty to the King. Schools, banks, and the Thai SET (stock market) are all closed today.

It is ironic that some world leaders have expressed “grave concerns” over this coup in Thailand because of its threat to democratic processes, especially since the general sentiment here in Bangkok seems to be that a great amount of Thais support the coup and view it as a positive development (due to the perceived serious levels of corruption that had infiltrated PM Thaksin’s reign). In fact, this morning on TV here, the military announced that they will hold power for no longer an amount of time than is absolutely necessary to return Thailand to a more democratic process. It is the hypocrisy of these world leaders that strips them of their credibility. They denounce the actions of the Thai military, but yet remain silent as corrupt regimes rule all over the world, only to finally voice an opinion upon the mobilization of extreme actions that are driven by the very fact that democracy has been fiercely eroded.

There have been great threats to democratic processes in recent U.S. and Mexican elections where accusations and allegations of massive voter fraud existed in elections that many believed to have resulted in “illegitimate” presidents. Many of these world leaders had a chance to demonstrate that when it comes to democracy, they play no favorites. All they had to do was demand accountability to ensure that indeed democratic processes had prevailed in these elections. Where were the “grave concerns” of these world leaders then? As an example, so many Mexicans believe that their recent election was fraudulent that they are enacting an unprecedented “parallel” government and swearing in a parallel President in Obrador 11 days before Calderón’s official inauguration. To me, this action is amazing, but perhaps necessary, if election fraud did indeed occur in the Mexican national elections, and the fraud was not corrected.

In 2004, Clinton Eugene Curtis testified under oath to the U.S. House Judiciary Members in Ohio that he developed untraceable software programs that could secretly fix U.S. election results in states that relied heavily on electronic voting machines. In an election where Kerrey convincingly won the exit poll results but convincingly lost the official results to Bush, and where there were statistically significant discrepancies between exit poll numbers and official numbers in the swing states of Florida, Ohio, and Pennsylvania that should have merited a serious, formal investigation. But it didn’t. In fact, the discrepancies didn’t even merit a fraction of the international protest that the current Thai coup is registering.

In Thailand, the coup that occurred last night was a bloodless coup, as peaceful so far (let’s keep our fingers crossed) as a coup could possibly be. Other “bloodless” coups may have happened in the past in the U.S. and Mexican elections through means more devious and less visible than a military marching into government offices, but nonetheless should have sparked similar international outrage, but has not (in Mexico of course, it has sparked domestic outrage). Again, because we don’t know if these claims in Mexico or the U.S. were true, accountability for accuracy in the election should have been demanded by the international community. But no accountability was ever demanded. This again, just further supports the theory of corrupt governments across the world supporting each other for economic gain. But I digress.

The quickest way to make money off of this coup situation is to short the SET. But since Thai stock markets are closed today and the SET will no doubt reflect the negative weight of the coup when it re-opens, if you haven’t shorted the SET when the rumors of the coup started (the coup rumors started weeks ago before it actually took place last night), it’s probably too late.

The Thai stock market is one of the most undervalued in all of Asia, trading at a P/E of about 7, compared to the South Korea’s KOPSI’s P/E of about 11 and the Hong Kong Hang Seng’s P/E of about 12. In fact, even though the U.S.’s S&P 500 P/E’s ratio is the lowest in a decade, it is still trading at a P/E of 16 (this demonstrates how undervalued Asian markets tend to be). As far as how Asian markets are labeled, at times it almost seems arbitrary. The South Korea market is still often classified by international stock market indexes as “emerging” but to anyone that has recently visited Seoul, it should be quite clear that the South Korean market has emerged already. But again, the arbitrary labels given to Asian markets that often confuse Western investors is a topic for another blog.

Major companies in the SET, just from my experience of being here, would be AIS, True Corp, Bangkok Bank, Thai Airways, Siam Cement, Charoen Pokphan Foods (otherwise known as CP Foods here), and of course the Thai PM’s former company, Shin Corporation. For a short term trade, it could be worthwhile to keep an eye on all of these stocks and wait to see how far they drop as a result of this coup. If some of these stocks drop significantly, wait until they look as if they have bottomed out, buy them and ride them up for quick gains. As long as this coup remains bloodless and the Thai PM does not launch a military counterattack, the Thai stock markets should recover nicely just as the U.S. markets quickly recovered about 25% in several months after 9/11. Furthermore, as a longer term investment opportunity, as the Thai SET is already highly undervalued, the coup will no doubt push the SET’s P/E ratio even lower. Again, many Thais probably view the coup as good for Thailand as long as it remains bloodless and peaceful. The SET is very young, as stock markets go, only founded in 1973. This means that it will still be volatile as it contines to mature. However, if the coup is successful and PM Thaksin is replaced with someone perceived to be much less corrupt, then the coup may actually help the Thai SET to bounce back strongly, smooth out volatility in the future, and help its performance in the long-term.

All I can say today is Power to the People.

Maholo, KAEHO

Entry Filed under: Thailand, Wealth Literacy