Thai king's death: views differ over impact on investors
Thailand's fund management industry players claimed the passing of revered King Bhumibol Adulyadej would have no lasting negative implications for end-investor returns or market performance, but it was not an opinion shared by all international onlookers.
Others close to the market suggested Thailand's economy and markets could be set for a period of subdued performance while Thailand's royal family and junta government manages the succession of Crown Prince Maha Vajiralongkorn.
King Bhumibol had reigned for 70 years, and been a key point of social stability in a country riven by coups and increasingly polarised political parties. In contrast, the 64 year-old crown prince is considered to be a less admired and unifying figure.
AsianInvestor spoke to several fund managers and local financial experts in Thailand in the aftermath of the king's death. Many, including Kidakarn Chudsuwan, first vice president and mutual fund product team leader at Thai Military Bank, argued that the country’s economic fundamentals have not been impacted and that market sentiment is not unduly concerned.
Thailand’s stock market rebounded on Friday (October 14), after the King’s passing the day before, following a week of steep losses. The Thai SET Index was trading up 4.4% on Friday after being down 6.1% for the week through last Thursday (October 13), as traders worried about the health of King Bhumibol, reported Wall Street Journal.
While the beloved king's demise was a blow to many Thais, it wasn't entirely surprising. He had been 88 years-old and had been in poor health for some time. Given the level of devotion that Bhumibol enjoyed among Thai people, a short term correction was hardly a surprise. One local fund manager described it as a "knee-jerk reaction".
However, the WSJ report noted that traders reacted positively to assurances from Prime Minister Prayuth Chan-ocha that the king’s expected heir Crown Prince Vajiralongkorn would succeed his father, lifting concerns about a messy succession.
Impact on asset owners
While bank distributors claim the impact has been muted, this might not remain the same for long, particularly for Thailand's pension funds and insurance companies.
Mark Mobius, executive chairman of the emerging markets group at Franklin Templeton, said the king's passing has already had an impact on asset owners' returns.
“Asset owners' returns will, in the short term, be negative," he said. “We expect ups and downs in asset prices for the next half year at least until the political picture becomes more apparent. However, such volatility will present opportunities”.
Mobius, who previously lived in Thailand, noted the late king was seen as a stabilising force over his 70-year reign, which spanned many changes, including almost 20 military coups.
"For now, the nation will observe a year-long period of mourning, and we will begin to see preparations for the royal succession as well as the upcoming 2017 general elections, both of which the ruling junta will oversee,” he said.
The Thai government has called for the nation to avoid joyful events for 30 days, and the official mourning period will last one year.
"During this period of political uncertainty, investors can expect some market volatility,” Mobius added. “At the same time, we believe that this impact will be short-term. Thailand's fundamentals remain strong, and we remain positive on its outlook.”
Local asset owners approached by AsianInvestor declined to comment for this story.
Minimal investor impact
Thailand's banks, meanwhile, which act as a major conduit of mutual fund distribution, felt it unlikely that demand from retail and mass affluent investors would change.
Chudsuwan told AsianInvestor via email that she believed it to be unlikely the royal succession will have much impact on investors’ preferences. Thai Military Bank hasn’t proactively been seeking fund investments over the past several days, because the country is in a mourning period. But Chudsuwan noted the bank hasn't seen a rise in outflows from domestic funds, nor has it witnessed large shifts of assets to offshore funds because of the King’s passing.
“So far this year most of the [investor asset] flow has gone into global fixed income funds and offshore mixed funds, as customers shifted money from deposits to mutual funds in search of yield and income,” Chudsuwan said. Mixed funds refer to balanced or multi-asset funds. Foreign investment funds in Thailand are distributed via a feeder fund structure.
“Global fixed income is more diversified and better for long term investment than domestic fixed income funds which mostly have short duration,” she noted. “We are not seeing major change in the appetite of investors. Only when the marker drops sharply will there be more inflows to long-term equity funds (LTF), which provide tax deduction to investors.”
The Thai government allows local investors to invest up to 15% of their annual income, but restricts them to a maximum of Bt500,000 to LTFs investing in the domestic equity market. Thais typically invest in these funds to save on their annual tax payment, said Chudsuwan, adding that there are currently 53 LTFs in the market with a total size of Bt277 billion.
Thai Military Bank has around Bt220 billion in funds assets under management and was one of the first local banks to go open fund architecture.
Local fund managers concurred with the view that Thailand's fundamentals remain strong, and markets were unlikely to experience more than short-term fluctuations.
Vana Bulbon, chief executive at UOB Asset Management Thailand, said the uncertainty around the King's health raised market volatility and that during the next week following the King’s death the market should improve, given the expected smooth transition to the crown prince.
"There hasn't been much portfolio adjustment; maybe at a sector level as the impact may be felt more in some sectors such as entertainment," he said.
Vana said he doesn't think investors will move their money offshore because of the uncertain future. "In fact, they may buy more if the market corrects again."
Smith Banomyong, president of SCB Asset Management in Bangkok, offered a similarly sanguine opinion. “We expect a smooth transition. The market fundamentals remain strong, with some positive signs. And given the recent price action, there is plenty of value to investors currently.”
Lingering uncertainty
Yet while many fund managers and distributors offered a relatively optimistic outlook, not everybody was so confident.
The royal succession has handed the junta government a potent weapon with which to frame public opinion. Thailand has heavy-handed lese majesté laws that stifle public comment of any kind regarding the royal family, particularly criticism of any kind. They were already being applied severely, with some individuals being handed 30 year sentences in recent months, and they are likely to continue being rigorously employed in the immediate aftermath, said one fund manager.
The BBC's website has already been blocked by the military junta in Thailand, a sign that foreign media will not be allowed to influence popular opinion.
A local business leader, speaking anonymously, told AsianInvestor that the period of succession and the military-backed government's desire to ensure stability and see a stable transferral of royal power means that foreign observers should expect military rule to continue for a long period.
“I would also expect the economy to continue a sluggish and anaemic growth. Longer term, foreign direct investment has been slowing and that will continue whatever regime follows the King's death," he added.
Thailand's economy grew at 2.8% in 2015, although it accelerated to 3.4% in the first half of this year.
International fund houses, including JP Morgan, Invesco, AXA, Aberdeen and M&G all declined to comment when reached out to by AsianInvestor.
Other fund manager representatives, such as Christy Tan, head of markets strategy and research for Asia at National Australia Bank, argued the death of King Bhumibol would throw Thailand’s political limbo into sharp focus.
“The appearance of a political consensus on a quick succession of the Crown Prince is positive, if indeed it does come to pass. However, it might not be sufficient to lift the weight on business and consumer sentiment and growth is likely to continue to remain tepid,” she said in a report published Friday.
"A smooth transition will still leave many uncertainties. Both the Thai baht and the SET should continue to underperform the region and growth in the fourth quarter of 2016 and first quarter of 2017 could come in even weaker. Investment is likely to remain somewhat muted as the uncertainty remains significant, despite the early signs of a consensus about an early ascension of the crown prince to the throne.”