Thai economy post-covit: Waking up to a new dawn

Thanachart Securities offers an interesting look at the Thai economy in a new report and sees a suppressed economic growth path for Thailand but with an equity market bubble.

The world is waking up to a new dawn of reopening from lockdowns with expectations of a strong turnaround in 2021. Thanachart Securities foresees economic trends of disinflation and eroding pricing power from advancing technologies and ecommerce megatrends; a strong baht; mediocre exports on weaker global pricing and purchasing power; reduced fiscal spending on higher debt; weak private investment from soft global and domestic demand and a strong baht; and no end in sight to artificially low interest rates despite a sharp spike in global debt.

The winners may be the “big fish”, according to head of research, Pimpaka Nichgaroon.

“An overly long period of subpar economic growth has reduced opportunities for small firms to emerge and grow. At the same time, that has meant M&A opportunities for the “big fish” to gain even more scale and become even stronger. A full decade of extremely low funding costs has helped speed up that process and we expect another decade of this. This is why the SET has had only a few good listings over the years with just a handful of the same old investment choices. With substantial domestic liquidity chasing the same old limited stock choices, we expect the “big fish” to get valuation preferences”, writes Khun Pimpaka.

Among key economic factors:


  • Slow inflation period due to weak global and domestic demand, advancing technologies driving down prices, and e-commerce driving down prices. This creates environment of businesses’ low pricing power.

Extremely low rate cycle

  • Interest rates will likely remain at trough levels for years to come as demand for money remains weak amid chronic low economic growth environment. As low interest rate continues to fail to drive the economy, it causes search-for-yield behavior, which boosts asset value.

Strong baht

  • Strengthening trend to resume after GVC given no money printing in Thailand, vs. large-scale printing in major economies. Also, when tourism recovers, the current account is likely to be in a large surplus again.

Mediocre exports

  • Weak global demand from soft pricing and purchasing power. Thailand is also slow in adjusting its export sectors towards those in global demand mega-trends.

Weak private investment

  • Weaker global and domestic demand means less FDI and domestic investment. Strong baht also makes investment in Thailand less attractive.

Mediocre fiscal spending

  • As the debt-to-GDP ratio is likely to reach 53% at end 2020F (from 41% early in the year), the Thai government, being conservative in nature, may not spend aggressively on stimulus packages next year.

Prevailing consumption

  • Consumption to get support from deflating product prices boosting demand from the mass market, a resumption of strong tourism and continued populist policies.

“Two key results we expect to see from these economic trends are the ironic situation of a tamer economic growth outlook than in the past decade and an equity market bubble with more liquidity chasing the same assets. This irony is nothing new having taken place for the past seven years in Thailand where average market earnings growth has been 1% p.a. with a re-rated forward PE at an average of 17x (vs. the 12.5x 10-year average pre-QE era). But this time round, we expect an even greater divergence between slow growth and high valuations”, according to Thanachart Securities.