By Chris Mayer
11/08/11 Gaithersburg, Maryland – I almost cancelled my trip to Bangkok. I’m glad I didn’t.
11/08/11 Gaithersburg, Maryland – I almost cancelled my trip to Bangkok. I’m glad I didn’t.As most folks are probably aware, Bangkok has been under a deluge. Floodwaters engulfed the place and brought everyday life and commerce to a halt.
A local contact here in Bangkok warned me not to come. But I went anyway…
I arrived at the airport, which was mostly empty. There was hardly any traffic on the streets. When I got to the hotel, it was a little eerie seeing the sandbag defenses up around the hotel. In fact, most buildings had sandbags around them in case the floodwaters broke through. And when I walked in the hotel lobby, I was greeted by name. “Welcome, you must be Mr. Mayer.”
I must’ve been the only nut checking in that night!
Tens of thousands have already fled Bangkok. The floods, too, have certainly affected the flow of travelers here. Some foreign governments have advised their citizens not to go to Bangkok. Tourism numbers are down. Business meetings have been cancelled.
As a result, hotel vacancies are up. The Wall Street Journal reported that the Shangri-La Hotel had an occupancy rate of only 30%, compared with the 70-90% rate the hotel usually enjoys this time of year. I’m sure that’s typical.
As Bangkok is about 40% of Thailand’s economy, what happens in Bangkok is important to Thailand. The floods were the big topic of conversation everywhere I went. Bangkok has been hit with a number of business-stopping events in recent years. There was a military coup in 2005, protests that closed the airport in 2008 and more protests in 2010 that left 90 dead. (Some say this unrest is likely economic, whatever the political motives offered. The average manufacturing wage in Thailand is about $250 a month, compared with $400 in China. 10 years ago, the countries’ relative positions were the other way around.) The floods add to the list.
You might be surprised at the global impact of these floods. Thailand is the world’s second-largest producer of disk drives, for instance, at about 40% of global supply. Western Digital is particularly hard hit, with 60% of its production in Thailand. Key suppliers to the industry are also submerged in water. Nidec, for instance, has a 75% share of the motor market for disk drives. Its Thai plants are about one-third of production.
As a result, components are scarce, and the prices of disk drives are up about 20% since the floods began.
Japanese companies, in particular, rely on Thailand as an offshore production base. Toyota and Honda have plants in Thailand (and so does Ford). Both will have to scale back their global production of vehicles because of shortages of Thai-made parts. These facilities are literally underwater.
My first meeting in Bangkok was at the Spice Market at the Four Seasons. It was empty during what would normally be a busy lunch hour. I met with Lan, a Cambodian-born Thai of Chinese descent, who worked in the brokerage business for more than 20 years. (Lan is on “permanent sabbatical” now, she tells me.)
She gave me a good overview of the scene here, besides giving me a crash course in Thai cuisine. Lan brought up the historical curiosity of Thai independence. By dint of diplomatic skill and luck, Thailand has never been occupied. Unlike other nations of Southeast Asia, the colonial powers never ruled it.
I’m not sure what this means in practical terms. Lan thought it important enough to mention and said it may account for the relative enduring openness of the Thai economy to foreigners. Thais don’t have the baggage associated with the legacy of colonialism.
It’s easy to buy Thai stocks, for instance, and the Thai stock market is interesting on several levels. In that respect, my timing is good. Later in the afternoon, I got a bird’s-eye view from Andrew Stotz, a strategist at Kim Eng Securities. He had a neat way of presenting his ideas on the Thai market and its stocks in a flipbook publication that he puts out monthly, called Stotz Stocks.
The gist of his latest view is that Thai stocks are attractive at about 11 times earnings, with low debt, hefty dividends (near 4% yield) and healthy returns on equity (around 20%). Those are the averages. A little stock picking, of course, can you get you even more enticing goods.
Plus, foreign ownership of Thai stocks is down to where it was in 2009, at around 35%. This may be a contrarian indicator, as foreign investors owned 41% of the market before the crash in 2008. And contrary to the Western world, Thailand has low debt levels. No sovereign debt crisis here!
According to Stotz, historically, Thai stocks do well from this 9-12 price-earnings ratio range, with an 18% return in the year following and an 11% annual return over five years. A blunt instrument to play Thai stocks is the MSCI Thailand Index Fund (THD). (I’ll have a more-targeted play in your next letter.) Thailand has been through worse crises before and has always rebounded.
So as bad as the flood appears, I am inclined to think this, too, will pass. It seems a temporary setback for Thailand’s markets, which, like bamboo, bends but does not break from the stresses put on it.
Needless to say, the Bangkok I saw on my visit was not typical. But I am glad I lingered in the city anyway. It was supposed to be just a stopover on my way to Cambodia and Vietnam. But thanks to Lan, my contact and new friend, I had a productive time there that included one fantastic meeting that turned up what may well be the best idea of the trip.
Regards,
No comments:
Post a Comment