Thailand: Can the Whimpering Tiger Spring Ahead?

Generally speaking, a coup d’état is not good for business. Political upheaval usually scares away investors who become unsure of their footing under a new regime that has muscled its way into power.

Thailand’s coups have been an exception. In 18 other such takeovers since absolute monarchy ended in 1932, none have led to a financial crisis. Investors are betting that it will be the case again this time around, even if they cannot count on 87-year-old King Bhumibol Adulyadej, who is ailing, to intervene once again as a stabilizing force.

Bangkok, Thailand

Since General Prayuth Chan-ocha and his troops took control of the Thai government in May 2014, ending civil strife over the populist policies of ousted former Prime Minister Yingluck Shinawatra, the benchmark stock market index Thai SET has been among the best performers in the region. It is up 7.15% year-to-date as of February 18 and gained 25.27% in one year. Compare that to Indonesia’s Jakarta Stock Exchange Composite Index, up 3.13% thus far in 2015 and 19.79% in one year; and Malaysia’s Kuala Lumpur Composite Index, up 2.93% year-to-date and 2.04% in a year.

The Thai baht has stayed resilient as well since the coup, hovering between 32 to 33 baht to the U.S. dollar in the past 52 weeks. In fact, the currency is a bit too strong for the country’s main business group, the Thailand Chamber of Commerce, because it hurts exports at a time when overseas shipments have been falling, according to a February 11 story in The Wall Street Journal. The group has called on the central bank to clamp down on the baht. Meanwhile, private equity firms continue to invest in Thailand despite the political uncertainty, according to the December 2014 issue of Private Equity Analyst, a Dow Jones publication.

“Thailand has a relatively robust investment environment,” says Philip Nichols, Wharton professor of legal studies and business ethics, whose research interests include international trade and emerging economies. “Thailand is regarded pretty well among business people for its low regulatory burden, and with a low regulatory burden usually comes less corruption.”

Indeed, it is Thailand’s weakening economic outlook that has so far overshadowed its political problems and risks. Like other markets, the country is being hurt by a slowing economy worldwide, especially in China, its largest export market. On January 13, the World Bank cut its global GDP outlook for 2015 to 3% from 3.4%, and to 3.3% from 3.5% for 2016, according to its semiannual Global Economic Prospects report. The International Monetary Fund has followed suit.

Originally published by Knowledge@Wharton March 11, 2015.

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