Thailand: Excess supply of money and excess supply of goods

1. Thoughts on the Thai economy:

The Economic Clock suggests that Thailand faces an excess supply of money and an excess supply of goods. Excessive liquidity is the key driver behind the massive gains in the stock market. Despite this, actual domestic demand still remains low.

Export is Thailand’s only ‘real’ growth engine and that is being threatened by the strength of the baht. The problem is exacerbated in the fact that that most Thai exports are highly price-sensitive. This is why the monetary committee is likely to propose easing monetary policies further, aimed at boosting capital expenditure' and the government is now trying to contain the baht's strength.

A 22 July Sunday Morning Post featured a former Thai stock guru named Sirivat Voravetvuthikun who in the glory days before the 1997-1998 Asian financial crisis was known as Mr. Phantom who ended up selling sandwiches after the collapse. Now a successful entrepreneur, the previous Mr Phantom, who is now known as M. Sandwich is bearish on Thailand’s economic prospects, spying a correction around the corner despite the pickup in stock prices. He points to rising personal debt levels, falling foreign investment, the steady climb in pump prices as reasons to be cautious. He said also today’s spenders are going to be tomorrow’s debtors. “Ten years on,” he says, “I’m not sure the Thai people have learned anything. Thai people seem to forget things very fast.”

2. Thoughts on Thai investment sentiment:

The Economic Times points out that in the near term, there appears to be no reason for things to improve. For the Japanese, investing in Thailand has become 36% dearer because of the baht's strengthening against the yen, and for Americans, the figure is 22%;

On the political front, things aren’t at a worrisome stage. Thailand’s slowdown began in 1Q04, two and a half years before the former Prime Minister, Thaksin Shinawatra, was replaced on 19th September 2006, so let’s not be unfair and blame only the current government for the slowdown. However, investors hoping to invest in Thailand will need to think about the opportunity cost involved: countries like South Korea, Vietnam, India and China offer better returns.