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Fund Managers See Value In Thai Stocks Amid Escalating Unrest
Malaysia Perspective | 11 June 2010

Fund managers upped their investments in Thailand during the month of April, seeing opportunity as escalating political unrest weighed on valuations, according to Dow Jones Newswires’ monthly fund manager survey.

Managers stayed “overweight” on Thai stocks in April for the second month in a row. Weightings reflect managers’ portfolio composition compared with benchmark indexes.

Despite the escalating protests, “[corporate] earnings so far are still quite good,” said Grace Tam, manager of investment services at JP Morgan Asset Management, which is overweight on the country.

“If the political crisis continues to deteriorate to the point where it affects earnings of companies that we like, then of course we will downgrade, but this is not the case yet,” Tam explained, adding that there are opportunities for surprise earnings upside. “Equity analysts are already very bearish so their forecasts are very conservative, but we don’t think their earnings will turn out that bad,” she said.

“Red Shirt” protesters have been facing off against troops since mid-March with demonstrators demanding re-elections. With unrest escalating, Thai army and government officials have now authorized military commanders to use lethal force to stamp down on the demonstrations.

The continued unrest has weighed a bit on equities with the Thai SET index down 2.5% so far this month. But valuations haven’t been affected too much – the index is up almost 8% over the last three-month period.

To be sure, while fund managers see opportunity for now, there are those who see an increasing risk that this time, the political unrest may have some lasting impact on economic growth. Put in that context, the dip in Thai stock valuations isn’t that attractive.

“While the potential for a dissolution of the existing government looks increasingly more possible, the recent stock market decline should be kept in the context of the significant gains witnessed [earlier],” said Stuart Winchester, senior portfolio manager at RCM Asia Pacific, who believes that markets may have underestimated the resolve and staying power of the “Red Shirt” protesters.

In other parts of Asia, investors started moving away from Chinese stocks, which dropped to a “neutral” weighting in April, its lowest weighting since November 2008.

Chinese stocks have been weighed down by concerns about tightening measures, including moves to curb real estate speculation. Managers favored Hong Kong stocks over mainland Chinese holdings.

Hong Kong, historically the ‘gateway to China,’ continues to be seen as a more conservative way to invest in the China growth story. Hong Kong’s stock market doesn’t see the sort of swells and dips seen on the mainland. April was a good example. While the Shanghai Composite Index was down 6.7% month to date, and down 11.5% for the year, the Hong Kong Hang Seng index declined 1.4% in April and is down 4.22% year to date. Fund flow data showed uneven flows into greater China funds in April, alternating between inflows and redemptions.

Asia ex-Japan stock and bond funds continued to be fund manager favorites in April. EPFR Global data shows that investors pulled large amounts out of money market funds in April and put the capital to work in equities, particularly emerging market funds. This month’s survey shows that fund managers held overweight positions on emerging markets bonds and stocks during the month and “slightly overweight” positions on Asia ex-Japan bond and stocks.

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