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Charlemagne’s Gems: there's no bubble trouble in Thailand

Charlemagne’s Gems: there's no bubble trouble in Thailand

Thai equities have been among the best performing in the world in recent times, with the SET index up 31% over 12 months to the end of March.

With property stocks leading the way – Quality Houses is up 169% over the same period – talk of a bubble has emerged but a recent visit to the country has put our mind at rest.

Although the sector is booming, it does not look overstretched and the Bank of Thailand has scope to step on any signs of overheating. According to reports, the Bank is already considering cooling measures and meeting property developers to gauge the health of the market.

In broad terms, we remain positive on Thailand and are overweight across our portfolios with double the benchmark position.

Looking at the macro, growth has averaged 5% per annum over five years and the economy has made huge strides in the last three decades, moving away from a traditional reliance on agriculture.

In line with many emerging countries, consumerism is a major theme as Thailand also looks to reduce its dependence on exports.

We would highlight other supportive fundamentals, including the usual emerging market infrastructure story.

Thailand is a large country, with its 60 million inhabitants spread around and a new 2,500km high- speed rail network is expected between 2016 and 2018 costing in the region of $30 million.

Looking at investments in the region, banks have been key to overall market performance alongside property.

This has led bubble fears to their door but we highlight names such as Kasikornbank, where loan growth in the 9-11% range is far away from the 20% expected in bubble territory.

Meanwhile, the bank has also set aside extra provisions and looked to expand fee income, with attractive metrics including a return on equity of 21% and an estimated price/book of 2.3 times for 2013.

Top stocks and themes

Another favoured name is Major Cineplex, a cinema operator with 70% market share.

To give an idea of growth potential, Korea currently sells 200 million cinema seats a year, with a population of 50 million; Thailand, with its 60 million, only sells 35 million seats. Major Cineplex is planning to open a further 100 screens this year, with many outside Bangkok.

This reveals another key theme in Thailand – and across Asia – as urbanisation continues at rapid pace beyond established cities.

So-called ‘up-country’ growth or regionalisation is also evident at Kasikornbank, with three-quarters of 100 planned new branches to be spread around the country.

Showcasing the breadth of opportunities, we also hold telecom Advanced Info Services and Coastal Energy, which seeks and produces oil in the Gulf of Thailand.

Taking AIS first, the company is in the process of a 3G expansion and expects to cover all 77 provinces by the end of June, with data revenues increasing around 20% per annum.

As for Coastal Energy, the business has expanded production to 25 million barrels per day and should increase this to 30 million by mid-year.

It also trades at a substantial discount: the core NAV is currently $23 compared to a share price of $19.

Julian Mayo (above) is the co-portfolio adviser of the Emerging Market Dividend Fund and the Co-CIO of Charlemagne Capital.

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