It is never prudent to ignore the money-making potential of Thailand.
Dubai - Shares in Japan, South Korea and Thailand seem the most attractive in continent
Asian equities have risen 14 per cent in the first three months of 2017, more than double the return of the Standard and Poor's 500 index, powered by bull markets in India and China though Japan's Nikkei Dow has been a disappointment because of periodic surges in the yen against the US dollar and the euro. Even though the Nikkei Dow has almost doubled from its 9,800 level on the eve of Shinzo Abe's election as the LDP's prime minister in the historic election of November 2012, the bull market in the Empire of the Rising Sun has stalled because Abenomics has not delivered structural reforms, Federal Reserve dovishness, doubts about the Bank of Japan commitment to another "shock and awe" monetary easing and softness in ten year US Treasury bond yields has led to traditional safe haven inflows into the yen to 110 against the US dollar.
However, while the Nikkei Dow is often negatively correlated against with the yen, a correction in the Nikkei Dow to the 18,000 level could make it profitable to go value hunting in Marounuchi at 13 times earnings, a significant discount to the valuations of both Wall Street and Europe. There is no real recession risk in the US, the Bank of Japan has not abandoned its two per cent inflation target, earnings growth momentum in Japan Inc has not faded and Shinzo Abe will survive the Osaka school donation scandal. This means the secular bearish trend in the yen is still intact, despite periodic bouts of safe haven capital inflows. This makes me a nervous bull on Japanese shares in 2017 with a fondness for reflation proxies like the megabank Sumitomo Mitsui, insurer Dai Ichi Life and property developer Mitsui Fudosan.
Thailand was the second best-performing Asian stock market in 2016 after Pakistan. Bangkok's SET index rose 22 per cent, admittedly far below the Pakistani stock exchange's 45 per cent rise in 2016. Ironically, in the past decade that witnessed the overthrow of successive Thaksin Shinwatra governments in military coups, yellow shirt/red shirt social conflicts that erupted into bloodshed in the streets of Bangkok, epic floods, a global recession, terrorist outrages and the death of the revered King Bhumibol. Thai equities have delivered investors in the Gulf a 12 per cent annual return, more than India or China. I have learnt the hard way that it is never prudent to ignore the money-making potential of the kingdom of Siam!
In 2017, the hottest Asian emerging markets have been India and China/Hong Kong, not Thailand or Japan. However, I consider Thailand, Japan and South Korea to be the three major "value" stock markets in Asia. Thailand trades at 14.3 times earnings, a reasonable metric at a time when Malaysia, Indonesia and the Philippines trade at 16-18 times earnings. Cheap valuation alone means squat unless accompanied by strong earnings growth. Thai equities offer 10 per cent EPS growth in 2017 and at least 12 per cent in 2018, thanks to a rise in economic growth, a surge in Japanese FDI in the auto sector, a rise in rural incomes and an accommodative monetary policy by the Bank of Thailand, the kingdom's central bank. Export growth will accelerate in 2017 and the military regime will boost public/infrastructure spending in this "year of mourning" for King Bhumibol. Consumer shares, banks and infrastructure are the winner themes de jour in Thailand.
South Korean equities have rise 23 per cent in the past year yet the Kospi in Seoul is still the cheapest major stock exchange in Asia at 10 times earnings. The bull market in Seoul has ignored the arrest and impeachment of former president Park Geun-hye, a sordid bribery and influence peddling scandal in the chaebol conglomerates who powered the "economic miracle on the Han River", Donald Trump's threats to take unilateral action against the Pyongyang regime and a diplomatic dispute with China over the deployment of the Pentagon's Thaad anti-missile defence system.
Samsung Electronic's 60 per cent-plus bull run powered the stock market miracle on the Han River in 2016-17. South Korea still trades at only 1.07 times book value against three times book value for American shares on Wall Street. As in post Dilma's Brazil, hopes for reform in a corrupt political/business culture and a commitment to greater shareholder payouts can ignite "animal spirits" on the local stock exchange.
The writer is a global equities strategist and fund manager. He can be contacted at firstname.lastname@example.org.