Thailand Takes to the Polls With Investment in the Balance

Thailand goes to the polls on Sunday, the first of a series of elections in my part of the world. Indonesia and India will also shortly test the political will of the people, the world's third-largest and largest democracies, respectively. Thailand has just 69 million people, around the same as France. It also has a highly-developed economy by emerging-market standards. It was one of Asia's brightest stars before the Asian financial crisis 20 years ago. Now it would just love a little certainty. A military junta has run Thailand since 2014. And the generals have run the country just the way you'd expect them to run it: an enforced calm sitting above bubbling discontent, the status quo maintained, with nothing in the way of policy, economic guidance or innovation going on. So, the last half-decade has been a tough time for Thai business. Investors likewise haven't known what to make of it. No company or portfolio manager wants to invest when the rules can literally change overnight, and by emergency decree. These would be the first elections since 2011. Thai stocks would see a bump with the restoration of an elected government and a semblance of democracy. But U.S. investors should sit this out until the elections are over, since their outcome may well be a messy coalition. The full results will only come out in May, days after the coronation of new King Maha Vajiralongkorn. His official installment as monarch will bring a nationwide feel-good factor when held from May 4 to 6. After that, what happens is anyone's guess. Meantime, overseas investors have been pulling money out. They have withdrawn almost $730 million in stocks and bonds since the start of the year, according to Financial Times calculations, having invested a net $1.2 billion into Thailand over the same period last year. It was a below-par 2018 for emerging markets, disrupted by quick-fire selloffs in their currencies. Thailand offers one of the highest equity risk premiums in emerging Asia, meaning its equities have some of the best chances of outperformance. But its political mess marks it a no-go area for now. Thai coups are as common as a bowl of chicken curry, although unlike the chicken, normally no one gets killed. But this has been a time of particular instability, and real blood in the streets. That's thanks to a fundamental rift in the nation between populist red shirts that represent the rural masses, and the royal-linked yellow shirts affiliated with Thailand's urban elite. It's highly likely that red shirt Pheu Thai Party will win the popular vote on Sunday. Their supporters have won every election since 2001. But thanks to a rewriting of the election rules, they will find any victory hollow, their representatives counterbalanced by a bunch of military-appointed, unelected cronies. The military can pick all 250 members of the Senate. The 500 Members of Parliament in the House of Representatives, all elected, are the legislative body but can be countered. Current Prime Minister Prayuth Chan-o-Cha, the former commander in chief of the army, may cobble together enough votes and partners to remain in office, even in a minority government. He claimed power during a coup staged in the name of nation, religion and monarchy, then put himself in charge. His political platform has stressed Thai-ness and stability, although that's been enforced down the barrel of a gun. The problem is the rural Thai masses keep electing populist politicians. The 2014 coup was the second time that the military had deposed a leader linked to telecoms tycoon Thaksin Shinawatra, ousting him personally in 2006 and his sister, Yingluck, eight years later. Thaksin, convicted of what are most certainly politically motivated charges of corruption, lives in exile now. He's been here in Hong Kong the last few days for the wedding of his youngest daughter to a Thai pilot. When he's not here, he flits between London, Singapore and occasionally Beijing. Since the fiasco of the Thai king's sister's abortive attempt to run for prime minister, it's been a quiet run-up to the elections. The party who nominated her got banned, but the military has not moved against Pheu Thai. International observers are watching to see how well the soldiers respect the results if the election goes against them. There are factions even within the military. Those rifts forced junta leader Prayuth to make the highly unusual announcement that he himself was not about to be removed by a coup on coup. Prayuth is part of an army claque called the Eastern Tigers, who historically have had ties to the Thai queen. They're currently in power. But King Vajiralongkorn favors his King's Guard, and has installed his staunch ally from that faction, Apirat Kongsompong, as army chief. It's General Apirat, son of a general who led a coup in 1991, who warned of another potential coup if these elections lead to unrest. The king also has his man as head of the powerful privy council, 98-year-old Prem Tinsulanonda, an arch-royalist appointed by the current king's father. It was essentially the worsening health and subsequent death of the beloved King Bhumibol Adulyadej, who ruled for seven decades before dying in 2016, that caused all this political uncertainty. Now the new king is attempting to exert his power over the military and is proving increasingly proficient at it. He has pushed for these elections, which have been delayed repeatedly, to take place. He would like to see Thailand moved back into the democratic family of nations. The biggest worry would be if the Thai elections only complicate the situation even further. There may well be a quagmire of elected Pheu Thai supporters in the majority blocked by military minority Members of Parliament, and the appointed Senate. We will soon hear how things went on Sunday, and wait until May for those early results to be fully confirmed. Investors should steer shy of Thai stocks until that point. If there's resolution then, watch out for a strong recovery as business and investment bounce back. Will I Have Enough Money to Retire? Want to learn about retirement planning from some of the nation's top experts? Join TheStreet's Robert Mr. Retirement Powell live in New York on April 6 for our Retirement Strategies Symposium. For a limited time, tickets are available for $99 for this full-day event. Check out the agenda, learn about the speakers and sign up here.

Thailand Takes to the Polls With Investment in the Balance

Sunday's elections in Thailand have the potential to provide a big boost to the nation's economy - and to Thai stocks as well.

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