Thai Stocks Unlikely To Recover From Coronavirus Anytime Soon

The worst performing stock market in Asia this year is Thailand. But investors thinking of buying shares now should limit their exposure because healthy returns are still a ways off.

Thailand’s SET Index is down 24.5% year to date, making it the 6th worst performing market globally. While most attention has been focused on the spread of the coronavirus in China, South Korea, Iran and now Europe, and the impact the illness will have on those economies, analysts say the effect on Thailand will be particularly pronounced. The country’s tourism-reliant economy is bound to struggle because Chinese tourists, which accounted for 27.6% of Thailand’s international tourists last year, are virtually non-existent these days.

This is bad news for a country that relies on large numbers of the more than 150 million Chinese who travel abroad annually, and more broadly for the ailing travel industry. Chinese tourists have been estimated to be spending $18 billion a year in Thailand, accounting for a significant proportion of the country’s economy.

Global ratings agency Fitch estimates that tourism accounts for for 13% to 14% of Thailand’s economy and the sector provides around one in six jobs. The agency cut its 2020 real GDP forecast for the country from 3.0% to 2.0%, classifying “the Thai economy as one of the most vulnerable in the Asia region to the impact of the coronavirus.”

Chinese visitors have been a key source of growth to the tourism sector in recent years, as the Thai baht’s strength and reduced interest from Europe has posed economic challenges.

All sectors of the Thai equity market are negative so far this year. The investable universe of Thai equities year-to-date performance is down 17.6%, with the tech sector showing the most resilience by only falling 8%, while basic materials has plunged 34.3% as the worst performing. In terms of valuation, Thai equities trade at a blended forward market price to earnings ratio of 14.4.

The Thai company most exposed to China’s economy is also the most highly rated by sell-side equity analysts among the country’s major stocks. Charoen Pokphand Foods (CPF) is rated “buy” by 24 of the 25 brokerages that track the stock, which is the highest proportion of any of the 50 largest publicly traded companies in Thailand, according to data compiled by Bloomberg. CPF is also the 13th largest stock in the SET 100 Index.

The 12-month average analyst consensus price still does imply the (potential) return of 44.7% from current levels, but this assumption and forecast could be at risk of a more meaningful downward revision if the coronavirus drags on for much longer or even gets worse. J.P. Morgan as the first brokerage that covers the stock as of March 11th “suspended” its rating on Charoen Pokphand. Other banks and analysts might follow.

IMF Managing Director Kristalina Georgieva said, “Global growth in 2020 will dip below last year’s levels, buy how far it will fall and how long the impact will be is still difficult to predict.” Many analysts and investors might still be too complacent with regards to the longer-term supply and demand shock impact on the global and Thai economy.

Overseas investors have pulled $1.18 billion from Thai equities this year, adding to an $11 billion withdrawal in the previous three years, according to data compiled by Bloomberg.

Investors should probably hold onto their cash a bit longer and avoid the urge to rush in to buy Thai equities because their recovery from the coronavirus may still be a ways off.