Will Thailand be the star of Southeast Asia next year, in a 2023 that likely will see solid outperformance for emerging markets in general?
It looks like the Thai economy will pick up its pace next year, which certainly can't be said of most Western nations. Nomura has "high-conviction views" on Thailand, which it forecasts will see GDP rise 3.8%, up from the 3.3% pace this year.
In line with that solid economic performance, Thai stocks have been remarkably consistent this year, particularly when you consider the selloff in the West this spring and summer. At the heights of a correction in July, the Stock Exchange of Thailand Index was down at most 7.5%. Thai stocks are ending the year not far from where they began it, down just 2.2%. There was nothing this year like the panic selling in the early days of Covid back in March 2020, when they lost one-third of their value.
It looks as though it will pay for investors to have a global over-allocation to Asia. "Asia could be the best of a bad lot and avoid outright recession," Jefferies said in its new report "Asia Outlook 2023 - Our Best Ideas."
"In the past shocks of the dot.com bust and the GFC, Asia bounced back quickly, and we expect that it can do the same in 2023," Jefferies stated.
Thailand will be a prime beneficiary if China continues to open. It's the top foreign destination for Chinese travelers, who have spent three years cooped up at home. "Revenge tourism" will likely be a factor, Jefferies predicts, as Chinese tourists slowly return. "This could lead many tourism-related plays to surprise on the upside in terms of earnings."
Tourism accounts for a far-larger chunk of the Thai economy than most other nations. It got 11% of 2019 GDP from the sector, a figure that plummeted during the pandemic, when the number of visitors plunged from 40 million to just 428,000 in 2021.
But Thailand is also a prominent base for production and a solid consumer market, based on its relatively wealthy population of 70 million. The World Bank considers only Thailand, Malaysia and China as "upper middle income" emerging nations in Asia (while Singapore, Japan and South Korea are high income). Consumer confidence is riding high, hitting a 20-month high-water mark, according to the Thai Chamber of Confidence index. Respondents reported greater confidence given the solid economic activity, return of tourism and easing Covid restrictions.
Tesla (TSLA) sniffs opportunity there. The electric car company this week launched sales in Thailand, taking online bookings as of Wednesday for the Model 3 and Model Y. It will be making the cars in China, although with Thailand driving on the left and China on the right, the Thai-destined vehicles will need to have the steering wheel switched. Tesla also will be competing with far cheaper Chinese-made electric vehicles such as those produced by Warren Buffett-backed (BYD HK:1211 and (BYDDY) ). The cheapest BYD model is the E1 compact, which costs 374,000 Thai baht (US$10,750), and even the Yuan Pro crossover SUV starts around 560,000 baht (US$16,100).
As you'd expect, Tesla's cars are at the higher end of the market in Thailand, even as it pitches its more affordable designs. The Model 3 compact sedan will start at 1.76 million baht (US$50,572), while the Model Y midsize SUV will start at 1.96 million baht (US$56,326).
Thailand is Tesla's second market in Southeast Asia, after launching a solid test case with sales in the city-state of Singapore last year. While Tesla's Shanghai factory will need to operate at full capacity to serve Thailand, China and Singapore, the company is considering a base in Southeast Asia. Thailand's solid infrastructure for factory production would be an attraction, though Indonesia is also pitching itself and its rich deposits of battery components such as nickel.
The Thai EV market is small, projected to reach US$157.8 million this year, according to Statista. But those forecasts show it growing at a stellar average annual growth rate of 22.5% in the next five years, with sales hitting US$345.7 million by 2027.
Let's not forget that emerging markets are also relatively small and susceptible to swings in their mega-cap stocks. The US$2.3 trillion market capitalization of Apple AAPL alone is four times the size of the entire Thai stock market, which had a combined market cap of US$573 billion as of November.
Other factors that bode well for Thai stocks and the economy are the easing of U.S. dollar strength and inflation. The Thai central bank has been raising rates, most recently with its third consecutive rise to 1.25% in November, but may be nearing the end of that cycle, with one more 25-basis-point increase currently forecast by Nomura. Inflation stands at a relatively high 6.0% but appears to have peaked, with the central Bank of Thailand anticipating it will slow to 3% next year.
That would mean inflation turns faster in Thailand than the rest of Southeast Asia. Nomura is also bullish on the Thai baht against the U.S. dollar, predicting an increase of 800 "pips" on its long THB vs USD and EUR position by the end of February. That's a call it makes with a "maximum conviction level of 5/5."
There's only one pure-play Thai exchange traded fund listed in the United States. That's the iShares MSCI Thailand ETF (THD) . It is down slightly this year, like the Thai market it tracks, with the ETF posting a 3.3% decline so far in 2022. But the performance has been in recovery since mid-October, and has gained 17.3% from this year's lows.
The economic fundamentals as well as the opportunity for a Covid reopening play suggest those advances will sustain well into 2023, if not throughout the year.