I made a major decision last year, to exit entirely from the Thai stock market. For the first time in four decades, I sold everything and moved my investments elsewhere.
Given the non-stop downward trend of the Thai stock market of late, it is clear I was not alone in making this decision.
This was not an easy decision for me. I have been an investor since 1986. I owe my financial security to the Thai stock market and my working life was always tied to the stock market. Indeed, my father was even the founding chairman of the Stock Exchange of Thailand back in 1975! So my attachment runs deep.
However, one piece of advice I received very early in my financial career was “Never fall in love with your investments”. In other words, I love my country, but sentimentality is the wrong approach to the making of investment decisions.
So what drove my decision, and what can be done to change my and many other investor’s minds?
Let’s first take a quick look back at the past. I was very lucky in my timing with the markets. Between 1986 and 1995, before the market started to fall in anticipation of the Tom Yum Kung crisis, the SET returned an average of 25% per year. During that same period, Thailand's gross domestic product (GDP) grew by an average of 9% per annum.
The emerging markets were hot, and we were the white hot core in the centre of it all. Everything was going our way. We had the resources, we had the work force, we had the right economic policies and global geo-political and economic trends were all in our favour.
Winds of change
But then something changed — growth stalled. GDP growth between 2000 and 2010 halved to just over 4%, then halved again between 2013 and 2019 to 2.5%. Since 2020 we have become the sick man of ASEAN and our economy has grown barely 1%. These statistics are why we should not be surprised that foreign investors have steadily sold 1 trillion baht of Thai stocks over the past 10 years.
So what happened to us? More importantly, is there anything that can be done to turn our prospects around?
To be fair, there are externalities that led to the decline in interest in our stock market, and indeed to the traditional emerging market asset class as a whole. After all, what were the factors that made any economy an “emerging” economy? Well, labour was one, coherent economic policies derived from constructive politics was another. Reliable legal system and conditions that allowed entrepreneurship to flourish was also important.
The tech factor
All that remains true, but I would argue that there is an additional, and critical driver of economic growth: Technology. This was already the case in the 2000’s but the trend has accelerated since, as tech advances became more powerful. It is also clear that the dominant tech owner is the United States (and China - but China has been less investible for a number of reasons). The traditional emerging markets, meanwhile, are mostly mired in “old economy” industries. Thus it is arguable that the new emerging market is not a Brazil, a South Africa or even an Indonesia (though India is proving to be an exception), but Nasdaq itself. After all, the world's best tech companies all harbour ambitions to list in Nasdaq, not their local stock markets.
Not being strong in tech is not the only reason Thailand has been growing slower. We are suffering from the demise of what used to be our competitive advantages. We are a labour deficit country, and have been now for some years. This situation will continue to worsen given our increasingly low birth rates. In 2023 only 6.6 Thais were born for every 1,000 population (compared with 22 in the Philippines!) While the death rate was 9/1,000. The dependency ratio is shockingly fast moving down towards 2:1 from nearer 10:1 just a few decades ago.
The implication of this is huge, in terms of economic growth, tax revenue, welfare expenditure, land prices and overall quality of life.
Addressing this challenge will require multiple approaches, which will necessarily include huge improvements in education, and measures to increase personal savings. Moreover, given our shrinking domestic purchasing power, it would make sense to open up more to purchasing power from abroad. We need a rethink on the many restrictions on foreigners’ rights to invest in businesses, buy properties or simply move to live here. We need to make a serious effort to address the fact that we still have one of the largest proportion of “grey economies” relative to official GDP compared with every country in the world.
Unfortunately, demographics is not the only deteriorating factor affecting our economic prospects. I would like to raise one more: the issue of what is commonly termed “State Capture”. The definition of this is a State whose policies are “captured by private individuals representing the interest of private corporations”. Arguably, this is happening across the world but in Thailand, our weak political culture has become increasingly transactional. Political parties and thus governments have become increasingly dependent on funding support from the corporations.
The politics of policies
In the most recent elections, politicians will tell you in private that more voters demanded more money for their votes. An important reason is the voting system, amended by Parliament prior to the elections, that effectively allowed voters to ‘sell’ their constituency votes while retaining the option to vote for the party of choice.
Partly as a result of this, politics has become increasingly transactional between party and their MPs. A totally depressing culture has developed whereby MPs demand payments for voting to support their own parties on important issues, not least the no-confidence motions.
This has meant that many political parties are necessarily and increasingly dependent on their financial backers. This is bad news.
One can see evidence of ‘state capture’ in competition-reducing mergers, concession amendments and sweet heart deals. The loser is invariably the consumer, and the lack of fair play leads to lack of investments in our economy.
The effect of this is that large corporations become even larger and harder to compete against. Our top companies are tellingly the same companies that topped the list 20 years ago, and many are state-granted monopolies, either private or state-owned.
This is in stark contrast to the US where over the past 20 years there has been almost a 100% turnover in the list of the most valuable companies. Indeed, some of the top firms today were not even in existence 20 years ago. This is testimony to an economic system that allows innovation and entrepreneurship to rise to the top. This is much less true in Thailand today than it was 30 years ago.
“State Capture” is also a reason why we do not see serious policies that can make a difference to our future. Our prime minister is working hard but it’s as if he’s running on a treadmill, sweating like hell just to stay still. We need to turn off the treadmill, only then can we move forward.
For sure, this can happen and I see some evidence already of potential change through the younger generation, both in politics and business.