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“Thailand provides an example of how too much emphasis on the macroeconomic picture can be misleading for equity investors.”

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18 November 2013

Adithep Vanabriksha, Manager, Aberdeen New Thai.

View the Aberdeen New Thai company profile page

A number of macro-economic shocks and slowing global growth have hindered Thailand’s export-led demand model in recent years. Indeed, slowing growth forecasts have justified officials to pursue more expansionary monetary and fiscal policies, particularly in the aftermath of the devastating floods in 2011. Much work remains however and responsibility has been placed on the government to promote domestic demand in coming years, with fiscal stimulus such as infrastructure projects, forming a key part of the necessary support keep economic growth on track.

Moving away from the macro, the resilience of the Thai equity market over the last few years has been of particular interest. Flooding in 2011 had a considerable impact on stock values, however they rebounded quickly despite the economy shrinking in the fourth quarter of 2011 (down nine per cent year-on-year) and lackluster growth in the first half of 2012.

Equity performance is of course less remarkable if we step away from the common misconception that economic performance from a country or region automatically dictates the returns achieved from their corresponding equity markets. In Thailand’s case, the composition of the stock market is markedly different from the wider economy if viewed in terms of market capitalisation. Energy, bank and communication stocks dominate the stock market with exports contributing little to overall performance.

Thailand therefore provides a telling example of how too much emphasis on the macroeconomic picture can be misleading for equity investors. In reality, regardless of the macroeconomic backdrop, there are always quality companies who are able to prosper. The key is being able to identify them and first hand research is an essential element in being able to do so.

Big C Supercenter, for example, is the second largest hypermarket in Thailand selling a wide variety of consumer products such as apparel, cosmetics, housewares, toys, appliances, furniture, electronics, and hardware. The company boasts a steady, consistent expansion record with a strong emphasis on operational efficiencies and cost controls. We like the company’s strong fundamentals - the balance sheet is strong, earnings are well diversified and dividends remain healthy. The future looks bright too with potential to expand operations in Thailand, particularly outside of Bangkok, and also neighbouring countries such as Myanmar, Laos, Cambodia and Vietnam.

It is plain to see then that equity market values do not always correspond with the macroeconomic environment. For that reason, while we take into account macro trends, our investment process is based upon bottom up fundamental analysis with the aim of investing in good companies for a long period of time. This approach has helped our Thai funds outperform the market over the medium and long term. We are confident that those able to identify good Thai companies should find themselves suitably rewarded.

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