Investing in Asia: The case for Thailand

How is a post-pandemic Thailand competing with regional rivals such as Indonesia, Taiwan, India and China? Portfolio manager SAMIR MEHTA visited to find out

• Thailand has many advantages, but strong regional competition
• A case of watch and wait
• Find out about Samir Mehta’s Pendal Asian Share Fund

TO ESCAPE the constant hyperbole of all things Gen AI, we recently went to Thailand to meet a few companies.

Bangkok is normally gridlocked, but fortuitously we were there during school holidays. The pace was laid back and refreshingly languid.

Known as an export base for autos – especially trucks – Thailand has suffered from the advent of electric vehicles, which are dimming the future of internal combustion engine vehicles.

Tourism – including medical tourism – is a pillar for economic growth, but Covid upended that for a while.

Chinese tourists, a backbone of visitor numbers till 2020, have not yet returned in force.

Meanwhile, another chapter of political uncertainty hasn’t helped.

Demographically challenged with a comparatively smaller workforce and an ageing population, Thailand faces severe competition from other ASEAN countries such as Vietnam and Indonesia.

Lower disposable income growth, high levels of personal debt and a generally slower global economic recovery are also headwinds.

No wonder stocks in general have been a disappointment.

We do not presently own stocks in Thailand, but cheap valuations prompted us to visit some of those on our watchlist.

A few observations:

The geopolitical realignment around China is manifest in several ways.

Some foreign companies are relocating to Thailand as an alternative to China. They are increasingly supplemented by Chinese companies expanding in Thailand to circumvent tariffs or quotas on goods manufactured in China.

Thailand’s smaller and higher-cost workforce sets it at a disadvantage to its neighbours.

Companies looking for larger unskilled or lower-skilled employees prefer Vietnam.

India and Indonesia attract firms targeting their respective domestic markets rather than just exports.

Thailand’s advantage is that its people tend to be better educated and higher-skilled.

Officials at Thailand’s Board of Investments are engaging and willing to go to almost any lengths to smooth inward investments.

Thailand’s small number of free trade agreements is an impediment which the government is fervently working to address.

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They have streamlined visa applications (renewal now takes two minutes) and further simplified new investment licensing processes.

One company that owns, develops and sells land in industrial estates narrated a sea change in demand over the past 18-24 months.

Chinese EV producer BYD bought a piece of land from the government, which was four times larger than the previous largest parcel ever sold by them.

Another Chinese EV company is on the verge of signing for almost a similar size plot.

Besides EVs, companies are pursuing data centres as we witness a rush to set up server farms to meet the needs of AI and its attendant infrastructure.

Skilled, English-speaking workers in demand

Availability of a skilled workforce fluent in English and educated with an international curriculum will increasingly be in demand.

We met the founder of an international school whose 20-years-plus struggle is finally paying dividends.

Initially with fewer than 200 students, founded by a set of parents, he has grown to 4200 students with potential to expand into the next decade.

Close to 30% of his students are Chinese nationals. Mostly children of employees from Chinese companies but partly from a certain class of Chinese society with the means to migrate away from China and more comfortable residing in an Asian country. 

Medical tourism is booming

Medical tourism was always a forte of Thailand – most leading hospitals have multilingual staff, significantly lower total costs for top-notch medical expertise.

Keeping with the times of social media-driven transformations, aesthetic clinics (a euphemism for plastic surgery) offer a one-stop shop service to “rectify” any part of the anatomy.

Billboards are emblazoned with doctors portrayed as celebrities, social media influencers extolling the virtues of clinics and clinics appealing to the vanity of the insecure (even in neighboring countries like Indonesia).

Business is booming.

Retail quiet

What was missing was the vibrancy of retail traffic in malls. The absence of tourists has been compounded by a big expansion of retail space.

Ironically, the supermarket and convenience store space has consolidated dramatically.

With an absence of any form of anti-trust action, one family almost dominates the scene – though they have relied on copious amounts of debt which in my view burdens an otherwise good business.

Wait and watch

Overall, the “China plus one” de-risking strategy is real.

The consequences of capacity creation outside China – whether in ASEAN, Latin America or Europe – might become more pressing in a year or so if the global economy slows.

Thailand has many competitive advantages, but competition from rival countries with large domestic markets or bigger workforces is a challenge.

We return with no real compelling cases for investing in Thailand when Indonesia, Taiwan, India and even China present alternatives.

It’s a case of wait and watch – and back to the stream of next new things in GenAI.

About Samir Mehta and Pendal Asian Share Fund

Samir manages Pendal Asian Share Fund, an actively managed portfolio of Asian shares excluding Japan and Australia. Samir is a senior fund manager at UK-based J O Hambro, which is part of Pendal Group.

Pendal Asian Share Fund aims to provide a return (before fees, costs and taxes) that exceeds the MSCI AC Asia ex Japan (Standard) Index (Net Dividends) in AUD over the medium-to-long term.

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management. 

Contact a Pendal key account manager here