The last few days have seen significant friction between Thai protesters and the Thai army with particularly disturbing scenes in and around Bangkok and other areas of Thailand. Anti-government protesters have taken to the streets, causing the cancellation of a major Asian Summit, and there would appear to be no end in sight to the conflict. While the Thai economy as a whole has fallen in line with the worldwide economy many believe there is good value in the country, although this was prior to the latest round of conflict.
As Bangkok is effectively under siege with huge news blackouts and significant bloodshed on the streets there are many issues to consider for would-be investors in the region such as:-
The Thai economy
Despite all of the woes around the world the Thailand economy increased by 2.6% in 2008 although there is a substantial reduction expected in 2009. Economists believe a fall anywhere from 2% and 2.7% fall was on the cards for 2009 prior to the recent conflict between protesters and the government although this could significantly increase on the downside with reports of mass cancellations in the holiday market.
On the whole many investors believe that Thailand offers great value for money looking forward although this may be due to the fact that country has seen significant unrest since 2006 when former Prime Minister Thaksin Shinawatra was forced from power after a well timed and well enacted coup. However, many of these investors who see value in Thailand are now starting to think again because even though much of the conflict and destruction is centred in and round Bangkok, it will have an impact on the overall Thailand economy in the short to medium term.
The holiday market
Even though the conflict in the region has only occurred in the last few days, in reality there has been something of an undercurrent for some time since a forced change in the Thai government. Already we have seen forecasts of potentially up to 200,000 job losses in the holiday industry this year if the conflict, and the bad press associated with it, continues for some time to come. This will have a massive impact on the Thailand economy which has for some time benefited immensely from the ever-growing holiday market. Less visitors to Thailand means less interest in property which means a reduction in property prices and a cooling economy.
While it would be wrong to suggest that all holidays have been cancelled in the region, there have been reports of thousands of holidaymakers refusing to enter the country until the situation has calmed down and law and order has been restored. The so-called “Land of Smiles” which many people have been attracted to is certainly not smiling at this moment in time.
In truth Thailand has been one of the major success stories of the Far East over the last 20 years, attracting significant new business, significant new investment and ever increasing interest in the Thai property market. However, Standard and Poor’s, the debt rating agency, has already suggested that Thailand’s BBB+ credit rating is at risk and could be cut in the short to medium term. This would have a significant impact on the government’s ability to raise funds in international money markets and increase finance charges on existing debt.
Thailand’s stock market
As we suggested above, many investors believe that Thailand has offered substantial value going forward after the problems of 2006. However, over the last few days we have seen the likes of Credit Suisse issue advice to investors suggesting now may be the time to take profits after a rebound in worldwide stock markets last month and a 10% increase in the Thai stock market.
While there is no doubt that in traditional markets there is significant long-term value in Thailand, there are serious concerns that the ongoing situation in the country could push the economy back to the dark ages of 2008 and the height of the credit crunch. The pictures being beamed around the world are doing significant damage to the reputation of the country, stock market and in particular the property arena. Those with second homes and holiday homes in the region are now seriously concerned about the growing violence in the country.
Dependence on Western investors
The ongoing development of the Thailand economy and the Thai property market has been funded to a great extent by Western investors and Western businesses. The more potential risk on the downside, because of the ongoing unrest in the country, the more potential that investors will pull out in the short to medium term causing something of a vacuum in the Thailand economy.
This together with the ongoing uncertainty regarding the worldwide economy and the aftermath of the credit crunch could force a serious correction in the short term although some investors, brave enough, may well see this as a long-term opportunity to pick up cheap stock and cheap assets. As we all know, the country itself is dominated by Bangkok but it is worth remembering there are other regions in the country which are growing in popularity and seeing significant investment from overseas.
Thailand property market
After years of significant growth the last few months have seen the cancellation of a variety of luxury property projects around the country. The ongoing worldwide economic decline has impacted on all areas of the Far East and while Thailand itself had held up fairly well in comparison, the recent unrest could well see a significant reduction in investment from overseas in the short term. This is certain to have an impact on not only property prices but the Thai economy as a whole which depends heavily upon foreign investors and foreign travellers.
While this is not the first time we have seen significant civil unrest in Thailand, and especially Bangkok, many are surprised by the depth of ill feeling towards the Thai authorities and the fact that the violence has lasted so long. Many in the region believe this has been “on the cards” for some time since the change in leadership back in 2006.
Looking to the short and medium term there is no doubt we will see a significant reduction in economic activity, foreign investment, foreign travellers and ultimately Thai property prices. The reputation of the country has been tarnished and the longer the violence continues the more concern there will be amongst overseas investors and overseas visitors. While Thailand has experienced regular civil unrest in years gone by, many had hoped that violence to the extent we have seen over the last few days was a thing of the past, but this would not appear to be the case. Concern and caution are the watchwords at the moment as the longer the violence continues the more damage this will do to the international reputation of the country.