Thailand was once a foreign investment hotspot, but now it seems investors are losing confidence in the country, and rightly so. In December 2006, leaders who came to power through a military coup instituted a controversial economic policy requiring investors to deposit 30 percent of the money brought into the country in non-interest bearing accounts at Thailand’s Central Bank for a minimum of one year. The stock market dropped 15 percent in one day when investors heard of the plan. Thailand’s finance minister, Pridiyathorn Devakula, announced the next day that the government had decided to remove the restriction for investments in the stock market.
Wat Arun temple
However, Thailand is now going to put another restriction on foreign investment. The latest regulation will require that Thai citizens retain majority voting rights within companies. The past laws required majority ownership by Thai citizens, but foreign investors would get around it by retaining majority voting rights in the Thai company. This law will make for dramatic changes in some of Thailand’s publicly traded companies, as the voting rights will change. This could change the balance of power within these companies.
A string of bombings in Bangkok around the new year also damaged investor confidence. The new leaders fear the bombings were planned by supporters of ousted prime minister Thaksin Shinawatra. Thaksin has reportedly met with leaders of other Asian countries recently, and the new leaders are concerned he might be trying to gain support for his cause.
These events have wreaked havoc on Thailand’s reputation as a promising place for foreign investment. The current government seems incapable of running the economy, and the political turmoil does nothing to boost investor confidence.
This is a pivotal time for investors interested in Thailand. It is a very uncertain market, full of unknowns. Thailand’s market has fallen so much that the overall market is trading at a P/E ratio of less than 6, which is less than half the level at which surrounding countries are trading.
If this is as bad as it gets, there is nowhere to go but up. Thus, investors who get in on the bottom could stand to gain a great deal as the market rebounds to its previous levels. Thailand is not an investment for the faint-hearted, though. Foreign investment has traditionally been more risky than domestic investment; once this government’s instability is added in, Thailand has a high level of risk. But for investors willing to take chances and look the big picture in the long term, the potential rewards could make the risks worthwhile.
