Thailand’s Clinging Colorful Shirts

Thai shares tried to stay positive as martial law was declared after Prime Minister Yingluck resigned after the powerful constitutional court found her guilty of abusing office with an advisor replacement three years ago, as she still faces criminal charges for alleged violations during the costly rice subsidy scheme. New elections remain set for end-July under threat of opposition boycott as the former commerce minister took the interim government reins and was promptly met with another round of yellow-red shirt street battles in Bangkok. A slight current account surplus has been maintained on import shrinkage and tourism has not cratered as in the past, but domestic consumption has suffered on poor sentiment and banks pulling retail lines. The ailing king has not pronounced on the impasse and the military has been restrained although it has hinted at pre-emptive action with civil war risk. Portfolio accounts have begun to reflect local institutional investor weariness of the saga with net outflows as the rest of the region features greater returns and stability. Attention has turned to the hundreds of companies in Vietnam starting with the state airline again to be “equitized” through minority foreign private stakes, but there too plans have been sidetracked by political infighting as well as offshore oil fighting with the Chinese navy which erased a chunk of 2014 MSCI frontier gains. Premier Dung has been on the defensive since the collapse of the Vinashin shipping conglomerate which defaulted on external debt, but he has failed to win backing for faster restructuring or an ASEAN common maritime approach toward Beijing which claims historic and natural resource-rich sea lanes. Korea has been in a longtime currency and trade spat with its former enemy as it also prepares for more missile tests from Pyongyang according to defense reports. The central bank has been on interest and exchange rate holds on 4 percent GDP growth driven by good high-tech export and household demand performance. However stocks have struggled with lackluster earnings and corporate governance with $2.5 billion going to dedicated short funds authorized in 2013. On the free trade front, Japan’s desired entry into the Trans-Pacific Partnership with the US could erode volume from a previous bilateral accord completed in the first Obama term, but Tokyo’s auto and agricultural objections have yet to be overcome.

Japanese FDI into East Asia has been a major post-Abenomics theme with banks expanding their branch and acquisition presence and leading project and syndicated loan tables. Offshore relocation has left a record trade deficit and raised neighbors’ competitive profile, but Japanese retail investors continue to prefer EM currency Uridashi bonds from other regions. Europe and Latin America were the most popular, with the Brazilian, Mexican, Hungarian and Turkish units preferred as the Russian and South African ones were spurned after a torrid run. Indonesia’s rupiah and India’s rupee were only 1 percent of the total but their election breakthroughs could alter the team garb.