Oct 2, 2014

Riding the post-coup wave and my favorite issue of tax

There have been lots of developments in the Kingdom ever since my last post on infrastructure stimulus. Prime Minister Gen. Prayuth has retired (still in power!), the hunt for the Koh Tao killer is still on, and a trio of drunk Aussie farangs have fallen off a hotel balcony, the latest in a long line of falling farangs!

Anyway, my faith in the general and the coup had been repaid as the rising tide lifted all (almost) boats since the first quarter this year. Previously, my strategy was to focus my attention on the direct beneficiaries of government stimulus. That did not exactly work out due to the ill-timed street violence that shut down the Bangkok. Since then, I have taken positions in the direct beneficiaries of stimulus and domestic recovery.  

Yesterday, the Cabinet approved economic stimulus measures worth 364.5 billion baht, that also included the already approved budget, and was aimed to boost the economy in the final quarter. Inflation rose 2.15% year-on-year, for the first nine months of 2014.
40 billion baht is going straight into the hands of rice farmers, without the need to do anything! Farmers owning less than 15 rai of farmland will get 1000 baht/rai, and those who own more will get 15000 baht/household.
Although the government insists this is not a populist scheme, it had better do well to inform the farmers that this is one-off, and not to expect something reminiscent of the previous government's rice subsidy.

Exports shrank 1.4% year-on-year in the first eight months of 2014. Automotive exports are down 8.9% while farm exports are up 2.7% year-on-year. The automotive sector, responsible for 12.8% of Thai exports, is losing out as the motor industry expands in Indonesia and many car makers are opening plants. This sounds like a red flag, but the reliance on automotives largely came about due to the previous government's policies. Weak businesses will be shaken out and will just be replaced with newer businesses linked to the flavour of the day (or year).

Bangkok Bank was the only local bank among 9 foreign banks to be awarded licences for limited operations in Myanmar. Singapore (OCBC and UOB) was able to snag 2 slots!

A survey done by BCG around the second quarter this year of 200 senior government officials and business executives of ASEAN-based companies (domestic and MNCs), found that 80% of respondents feel SMEs will lose out when ASEAN integration takes place. The winners are likely ASEAN-based companies that have expanded out of country within ASEAN, and MNCs.

Taxes are coming in all forms now, with land and buildings, inheritance and gift, and excise taxes coming up for deliberation and reform. Already there has been a surge in registrations for land transfers within families. Taxes may also be coming for ready-to-drink green tea and fruit juice with less than 50% of natural ingredients, which almost certainly covers all the tea beverages.

(Sources: Bangkok Post)

Of course, I have learnt my lesson not to solely rely on government spending. While I would not describe the Kingdom to be in boom time now, it is back to business across all sectors. Opportunities can be found in areas where investment and demand had been affected due to the political impasse, as well as changing themes such as energy.

It is anyone's guess on where we are now in relation to the prices being offered now on the market. We have already come a long way (about 4 months?) since the coup, and very possibly, the best seats in the cinema have already been taken. There had been a surge in IPO activity, with quite a number opening several times the IPO price. Both the SET and mai indices are up, 22.23% and 97.59% respectively, and of course there are plenty of concern about whether the market has gotten too frothy. As I write this, the market has just opened not too long ago (less than 10 minutes), and SMART has just begun trading with a pop to 200% (ceiling for IPOs on opening is set at 200%), and there are also about 15 companies in line to list in the final quarter of 2014.

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