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Coup de grace

Helen Pow considers the economic impact of last week’s military takeover in Thailand

Fund managers believe any short-term weakness in the Thai stockmarket due to last week’s military coup could bring good buying opportunities.

Thailand is no stranger to military coups. Since it became a constitutional monarchy in 1932, it has seen 18 coups or attempted coups and has been governed by 31 prime ministers. The administration of the ousted Thaksin Shinawatra was the first elected government to complete a full term in office but this year Thailand has had a string of political woes.

The most controversial was in February when prime minister Thaksin, who is a very wealthy businessman, caused havoc by selling shares in his family’s conglomerate tax-free for more than 1bn.

The urban middle classes in Bangkok demonstrated their anger on the capital’s streets almost daily.

Last week’s coup has been largely bloodless and seemingly has the backing of Thailand’s king Bhumibol Adulyadej although he has not officially declared his support.

The Thai market was down by 2-2.5 per cent when it reopened on Thursday last week but then rebounded. Friday was weaker for the market as local investors sold .

Cuffe says: “Everything related to investor spending has been hit. Some construction companies that were looking positive are down by 20-30 per cent.”

Ousted Prime Minister Thaksin’s company was down by 30 per cent but Cuffe says there is lots of buying interest in the market from big foreign investers hoping to get a good deal.

Invesco Perpetual head of Asian equities Stuart Parks says: “Our view is that this should have no effect in the medium term and any short-term weakness is a buying opportunity.”

Threadneedle Investments emerging markets fund manager Maxine Cuffe says: “Ideally, the military will transfer power quickly to an interim administration, all-owing confidence to return.”

General Sondhi said last week that a “caretaker prime minister” would be appointed within two weeks.

Close Finsbury Far East equity fund adviser Stephen Swift warns that the tourism industry will be affected in the short term, potentially hitting the stockmarket.

Axa Framlington fund manager William Calvert says he “would not expect any extreme negative reactions” in the market.

Templeton Asset Management director Mark Mobius says: “We will continue to watch the market carefully and if prices fall as a result of the political situation, we may add to some of our holdings.”

Aberdeen New Thai manager Hugh Young says: “From a fundamental perspective, we like Thailand. Our contrarian instinct tells us to look for bargains if more risk-averse investors turn tail.”

Fund managers say the long-term effects depend on the reinstatement of a stable government. Swift says: “Longer-term stability must return or foreign direct investment into Thailand, a key positive factor for the economy, could be threatened.”

A new constitution could take a year to draft, during which time the military would rule. Many fund managers do not believe this is necessarily bad news and think the change could be positive for Thailand’s market. Calvert says: “Military governments can be much more competent than some elected governments. In terms of the economy, the change of is certainly not negative.”

The last Thai coup took place in May 1992 and in its aftermath the market initially dropped by 8 per cent but after eight months it was up by 30 per cent.

Emerging market funds fell significantly in May and June this year but the last three months have seen an upward movement.

Calvert says: “The coup will have a very marginal impact for emerging markets as a whole.”

He believes there is no indication that neighbouring markets in the region will become unstable.

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