Thailand’s Reluctant Rice Throwers
Thai stocks got a breather from the continued post-election standoff as Prime Minister Yingluck tried to reform her government while abandoning the rice subsidy scheme which has cost over $10 billion since inception and exhausted captive state bond and loan capacity. The Savings Bank briefly experienced a run on reports it would be a last resort backer, as the sector otherwise grappled with high household debt at 80 percent of GDP on double-digit annual expansion since 2008. The economy grew just 3 percent last year as hotel occupancy was only 50 percent in December and trade registered record falls. With capital outflows the baht has teetered at 33 to the dollar as consumption also suffers from Bangkok’s security gridlock and the central bank’s tighter lending standards. A full legislature cannot be seated until additional polls are held and many candidates have faced charges for months from an anti-corruption body after favoring a political amnesty law. Despite low valuations, listings associated with the Shinawatra family like SC Asset are particularly shunned, as protesters vow to march on their offices as they continue ministry occupations. The central budget will cover outstanding bills from the rice support program as public debt heads toward 50 percent of output prompting caution from ratings agencies. The military has not ruled out intervention to break the stalemate but the ailing octogenarian monarch has not weighed in unlike previous episodes he mediated. Opposition parties have joined with demonstrators to renounce the legitimacy of the snap election and demand “people’s rule” as the entire constitutional framework is revamped.
Indonesian shares in comparison are up 10 percent this year heading into parliamentary and presidential contests where spending boosts should return GDP growth to 6 percent, after late 2013’s fragility bout spurred monetary tightening to halve the current account deficit and steady the currency. However investors remain squeamish over populist policies bridging the leadership transition, after a mineral export ban was extended to other sectors to encourage local industry and candidates hint at reinstating fuel subsidies that have drained coffers. The government has also diversified borrowing into sukuk and away from 30 percent foreign ownership though a $5.5 billion fund for pilgrims to Mecca following Malaysia’s model. There equities are off through February as banks pull back on consumer credit and a 15 percent electricity tariff hike spurs 3.5 percent inflation. Public debt is 55 percent of GDP and Prime Minister Najib after winning re-election has scrambled to administer overdue fiscal retrenchment while maintaining his signature infrastructure modernization initiatives. A $20 billion petrochemical project is slated for launch in the second half, and high-tech and commodity exports remain firm, but portfolio inflows are slack as outward FDI has burgeoned with the aspirations of Malaysian multinationals. Blue chip CIMB struggled with a $1 billion capital call on the stretched perception as it tried to emphasize granular earnings.
