Transcript SIF II Board Meeting - Nov 00

Thailand : Economy and Stockmarket
•
•
•
•
•
•
Modest/uneven economic growth
Dilemma in financial system
Globalization to impact investment flows
Increasing industry consolidation
Selective investment opportunities
Stockmarket Outlook
13 November 2000
Thailand Economy : Modest growth ahead
•
As the Bank of Thailand sees it :•
•
•
•
•
GDP Growth of 4.5-5.0% in 2000 and 4.0-5.5% in 2001
Core inflation of 1.5-2.0% in 2000 and 2.0-3.0% in 2001
Export growth of 15-20% in 2000 and 6.0-12% in 2001
Import growth of 28-32% in 2000 and 10-15% in 2001
A CA surplus of US$9-10bn in 2000 and US$6-8bn in 2001
2
Quarterly Economic Performance
Q1
R e a l s e c to r
M anu f ac tu ri ng pro d u c ti o n i nd e x w i tho u t s e as o nal ad j u s tm e nt
M anu f ac tu ri ng pro d u c ti o n i nd e x w i tho u t s e as o nal ad j u s tm e nt
I nd u s tri al c apac i ty u ti l i s ati o n (% )
P ri vate c o ns u m pti o n
- P as s e ng e r c ar s al e s
P ri vate i nve s tm e nt
- C e m e nt s al e s (to nne s )
C o ns u m e r pri c e i nd e x
C o re i nf l ati o n (e x c l u d i ng f re s h f o o d and e ne rg y )
Q2
(% c h a n g e f r o m t h e s a m e p e r i o d o f l a s t y e a r )
9.6
3.4
-0.5
4.1
15.4
11.9
7.8
11.7
57.3
54.1
55.7
55.7
97.3
36.2
1.6
2
0.9
0.2
0.9
1.6
1
-11.2
2.2
0.8
16.2
27.8
14.3
42.7
1.9
3.3
-2.2
15.7
15
14.8
28
0.9
1.6
-0.4
-3
1.6
0.7
($ b i l l i o n )
18.0
50.0
22.5
21.6
16.5
45.6
33.8
34.4
1.5
4.4
2.2
6.7
0.4
-2.2
-0.1
-0.8
-4.5
0
-9.4
1.5
E x te r n a l a c c o u n ts
E x po rts
% c hang e
Im po rts
% c hang e
T rad e b al anc e
C u rre nt ac c o u nt b al anc e
B al anc e o f pay m e nt
Q 3 * Ja n -S e p *
35
M o n e ta r y A g g r e g a te s
C o m m e rc i al B ank C re d i t (e x B I B F )
B ank D e po s i ts
0
0
* P r e lim in a r y
S o u r c e : B a n k o f T h a ila n d
3
Economy : Reasons to be cautions on growth
•
There are several reasons why economic growth could disappoint :•
•
•
•
•
•
•
•
•
•
•
Nominal growth rates are very low by historic comparison (no chance to
“grow” out of trouble)
Deflationary pressures
FDI flows are sluggish
Limited room for the government to borrow further
Continued weakness in the banking sector
Corporate loan demand is constrained (leverage/int.rates)
Government has talked reform, but implementation weak
US economic landing may not be soft
High oil prices
Weak Euro has hit purchasing power in Euro-land
On this basis, we are more comfortable with 4% rather than 5.5% growth in
2001
4
Economy : Growth is patchy ……...
•
There are undoubtedly bright spots :• Exports are strong (+22% ytd)
• Vehicles sales have jumped (+30% ytd)
• Mobile phone sales are buoyant (+35% ytd)
• Electricity consumption is rising
• SET earnings are improving
• Significant refinancing of US$debt with Baht debt
•
But look at :• Industrial Capacity Utilisation (58% in September)
• Manufacturing production fell 0.5% YoY in 3Q
• Cement sales fell 11% YoY in 3Q
• Commercial Bank credit (ex-BIBF) fell 9.4% YoY to September
• Passenger car sales rose 2% YoY in 3Q
5
Economy : …. And likely to stay that way
•
The scope for the current economic recovery to broaden appears limited
• Government borrowing levels are high (and an election is imminent)
• Consumer confidence is still lacking (dampened by low agricultural
prices and limited job creation in manufacturing/construction)
• Bank deposit rates are low
• Investment is subdued, though there is scope for a modest
acceleration in 2001
•
For the foreseeable future, growth drivers will remain :• Manufactured exports
• Tourism
• Vehicle (manufacturing)
• Telecommunications
• Petrochemicals
6
The Financial System : A major dilemma
•
•
•
•
•
•
•
•
•
•
Still high levels of NPLs
Domestic banks under-capitalised to clear bad debts (encourages delaying
tactics)
Restructuring focused on large companies.
Infrastructure for delivery of loans to SMEs is (to say the least) inadequate
Bankruptcy laws still weak
Democrat government opposed to national AMC, yet few alternatives
Scope to revive bank lending (an engine for economic growth) is limited
High bank spreads have failed to restore shareholders equity (and
borrowers have suffered)
Limited scope to lower deposit rates (politically sensitive)
Tax regime discourages M&A activity
7
Non-Performing Loans : Bank Sector
N P L in f lo w /o u t f lo w (T H B b n )
N PLs
% q T o ta l L o a n s
N e t c ha nge i n N P L
T o ta l N P L i n f l o w
F ro m ne w N P L
F rom rel apsed N P L
T o ta l N P L o u tf l o w
F r o m r e s tr u c tu r i n g
F r o m o th e r r e a s o n s
M ay
1908
35.5%
-46
43
27
15
-89
-60
-29
June
1616
32.0%
-292
34
21
14
-327
-94
-234
J u ly
1597
31.3%
-18
42
24
18
-60
-46
-15
Aug
1593
31.2%
-4
42
17
25
-46
-35
-11
Sep
1115
22.8%
-478
33
19
14
-511
-40
-470
M ay
104
1450
8%
June
118
1589
8%
J u ly
136
1657
9%
Aug
161
1707
10%
Sep
175
1769
10%
M ay
1450
81
June
1589
139
J u ly
1657
67
Aug
1707
51
Sep
1769
61
E s t im a t e d r e la p s e r a t e
TH Bbn
R e e n tr y N P L
R e s tr u c tu r e d l o a n s
R e l a p s e r a te (% )
R e s t r u c t u r in g p r o g r e s s (T H B b n )
T o ta l -r e s tr u c tu r e d l o a n s
M o n th l y r e s tr u c tu r e d l o a n s
8
Globalization to Impact Investment Flows
•
•
•
•
•
•
•
•
•
•
Capital allocation to follow “Western” norms
Profile of emerging markets in portfolio flows is also changing
IT revolution changing nature of competition
Increasing importance of (western) standards of corporate governance
International standards of fiscal/monetary management
Thailand scores badly on corporate governance (but is not alone in this regard
in Asia)
Thailand scores well on monetary management (shift to inflation targeting),
but less well in fiscal management
Thailand is a proven destination for outsourcing assembly/manufacturing, but
scope to attract services seems limited
Continuing concerns over education, corruption, politics
Investors will focus on core competencies (such as export assemble, tourism)
9
Industry Consolidation : Making the strong
stronger
•
•
•
•
•
Thai industry needs to consolidate if it is to be competitive in a globalised /
liberalised market
There is evidence of consolidation in the Thai market place :• The string of collapses in the banking and finance sectors
• Superstores gaining market share in the retail sector
However, Thai tax laws stand in the way of M&A activity
Foreign ownership laws still prohibitive
Consolidation is on the (immediate) horizon in steel, cement and
petrochemicals
10
Thailand : Investment Opportunities
•
•
•
•
•
•
Lack of investor interest in Thai stocks is hitting the prices of both
fundamentally sound and unsound companies
Select companies are fundamentally undervalued absolutely and
relatively
Thailand does have companies that aspire to international standards
of competitiveness and corporate governance. These include
Shinawatra Group, Siam Makro, BEC World, Hanna Microelectronics
and Delta Electronics
There are growth segments in the economy and companies growing
within these segments. Exporters are well placed to grow, as are the
superstores as they expand into upcountry markets.
There are companies gaining market share in segments which may
themselves be (temporarily) depressed
There are companies which are emerging from fundamental
problems, where the recovery is not being recognised by the market.
11
Thailand Stockmarket : Outlook
S E T In d e x
600
B a h t/$U S r a te
SET
V o lu m e
500
400
300
200
100
0
6/11/00
6/9/00
6/7/00
6/5/00
6/3/00
6/1/00
6/11/99
6/9/99
6/7/99
6/5/99
6/3/99
6/1/99
6/11/98
6/9/98
6/7/98
•
6/5/98
•
6/3/98
6/11/00
22/9/00
10/8/00
28/6/00
16/5/00
28/3/00
14/2/00
30/12/99
16/11/99
4/10/99
23/8/99
8/7/99
25/5/99
5/4/99
19/2/99
8/1/99
23/11/98
9/10/98
28/8/98
16/7/98
•
2000000
1800000
1600000
1400000
1200000
1000000
800000
600000
400000
200000
0
50
48
46
44
42
40
38
36
34
32
30
Volatile nearterm (election uncertainty and external +/- against a sluggish
domestic economic backdrop)
Scope for recovery in 2001 (driven by “value”, political stability, lower oil prices,
an easier monetary policy in the US and a (hoped for) soft landing of the US
economy, supporting a positive external environment for Thai exports)
Risks are an unsatisfactory election outcome, a hard landing by the US economy,
slowing economic growth, domestically, and deteriorating bank NPLs
12
Thailand Stockmarket : Foreign Investor Activity
%
F o re ign pre m iu m
B t bn
25
T r e n d o f fo r e i g n o w n e r s h i p i n th e S E T
450
%
30
25
350
20
20
250
15
15
150
10
F . O w n ersh ip (B t bn )
F o reign o w n ersh ip as % o f t o t al m k t c ap s.
10
D e c -98 M a r -99 Ju n -99 Se p -99 N o v -99 F e b -00 M a y -00 Se p -00
•
•
•
50
5
D e c -98 M a r -99 Ju n -99 Se p -99 N o v -99 F e b -00 M a y -00 Se p -00
Foreign premia stabilising
Worst of foreign selling may be over
MSCI re-weightings (based on free float) will likely be marginally negative for
Thailand
13