May 15, 2014 12:00 am JST

Even in the confusion, some companies still rising

YUKAKO ONO, Nikkei staff writer

BANGKOK -- The May 7 court ruling that ousted Prime Minister Yingluck Shinawatra and nine ministers has weighed heavily on Thailand's stock market.

     The key Stock Exchange of Thailand index fell sharply, by more than 1%, on May 6, when the Constitutional Court announced it will decide Yingluck's fate the next day. SET went on a losing streak toward the weekend, falling more than 3% and slipping back to a month and a half low.

     Until the previous week, the index had been slowly but steadily recovering its losses since the end of October 2013 when anti-government protests broke out. In April, it had topped the 1,400 mark for the first time in 5 months. "Investors were coming back, thinking that the Thai government can pass the critical situation," Nasis Prasertsakun, an analyst at KKTrade Securities said. "But now, we don't have a full cabinet and investors may be losing trust in the country's future."

     In the four days through May 9, only three of the 50 largest companies listed on the Thai exchange -- the SET50 -- advanced.

     Some stocks were hit harder than others. The nation's largest telecommunication carrier, Advanced Info Service, and its parent, InTouch, are such examples. Both companies were founded by former prime minister, and Yingluck's elder brother, Thaksin Shinawatra. InTouch was formerly known as Shin Corporation -- taking the first four letters of Shinawatra. The company, however, recently changed its name in an effort to brush aside concerns it still has ties with the family.

     In fact, the Shinawatra family sold off all its shares in the former Shin Corporation in 2006, when Thaksin was prime minister, to Singapore's state-owned investment fund Temasek Holdings. This sparked controversy in Thailand and led to anti-government protests. Thai law prohibits foreign entities from holding more than 49% control of Thai companies. Also, the Shinawatras apparently avoided paying taxes on the sell-off.

     Still, in February this year, Suthep Thaugsuban, who leads the anti-government protesters, called on a boycott campaign against "Thaksin-related companies." AIS was one of them, and saw tens of thousands of subscribers leave in just two weeks. AIS management was forced to send out an email to its clients explaining that the company no longer had relations with the family.

     Looking at a longer time frame, from Oct. 31 last year when this round of political turmoil started, to May 9, AIS and InTouch shares shed 9% and 11% respectively. Other losers were also those related to domestic demand and tourism. Among the SET50 companies, hospital operator Bangkok Dusit Medical Services led the list followed by Thai Airways and Central Plaza Hotel, the hotel operator of retail giant Central Group.

     Gainers, on the other hand, were exporters, or those that were less reliant on the Thai domestic market.

     Investors' top pick for this period was Thai Union Frozen Products, the world's largest canned tuna manufacturer, which generates more than 90% of its sales outside Thailand. More than 40% of its sales come from the U.S. As the U.S. and European economies show signs of picking up, Thai Union projects group revenue to jump 9% in 2014 compared to a year earlier. Delta Electronics (Thailand), the Thai arm of Taiwanese electronics contract manufacturer Delta Electronics, was runner up and rose close to 19%. It also has strong business relations abroad.

     Chanitr Charnchainarong, executive vice president of the Stock Exchange of Thailand, says that as the political turmoil drags on, more and more investors, especially the foreigners that account for about 25% of the trading, are focusing on companies' overseas operations. "Although investors are looking past the political issue, seeing that it will be eventually solved, it is true that we have less government stimulus (in large domestic projects) due to the frozen (government) budget," he said. Also, investing in Thai stocks is seen as a "springboard to other countries that do not have a developed stock exchange, such as Myanmar, Cambodia, Vietnam and Laos."

    The unstable political situation is forcing more and more companies to shift investment abroad. A survey by Kasikornbank, one of the country's leading financial institutions, covering investment sentiment of 17,000 Thai companies, shows that 60% of total investment planned for 2014 will be for overseas, up from 35% in 2013. Myanmar is one of the most popular destinations.

    Meanwhile, the Thai stock exchange is working to bring back foreign investment. It held a Bangkok event in which 34 Thai companies took part on May 6, the day before the court ruling on Yingluck was handed down. More than 30 investment funds from abroad were invited.

    Also on the same day, it launched a new index futures product called the "mini SET50 futures." It was a renewal of the SET50 futures, introduced in 2006. The contract size has been decreased to 200 baht per index point, from 1000 baht.

     "The SET50 index has doubled in the past 8 years, making the index futures an expensive trade," Kesara Manchsree, the managing director of Thailand Futures Exchange, who has been appointed to become the next president of the Stock Exchange of Thailand in June, said. "By reducing the size, investors can come into the market more easily and we will see more trading volume and liquidity."

     Like other Asian markets, Thailand tends to be affected by external factors such as the monetary policies of larger economies. The U.S. Federal Reserve's decision to reduce the amount of money it pumps into the financial system, for example, had a detrimental effect on Thailand. While key indexes in the other four Asean markets -- Singapore, Indonesia, Malaysia and the Philippines -- have recovered to "pre-tapering" levels, the Thai SET index remains 4.5% lower.

      "Now, it is still a wait and see situation," Mayuree Chowvikran of Maybank Kim Eng (Thailand) said. "The new prime minister will be temporary and the focus is who will be elected next. Stock trading will become active from one month before the general election when things become more clear."