27 October 2011

Will Thailand flooding with Debts after this?

Oh my god. Another disaster has occurred, and this time is Thailand's turn. Finance Malaysia would like to offer condolences to Thailand for its massive damage caused by floods. This is not an ordinary floods, please read the numbers below then you will know.

  • worst floods in 50-years!!!
  • more than 300 lives gone
  • affecting nearly 9,000,000 people

Started weeks ago at upper Thailand, the floods were spreading down to its capital - Bangkok - now. Bangkok has more than 12 million population. The situation can only get worse from here and everyone is fleeing the city, searching for higher grounds and off to vacation. People are snapping up dry foods, fresh waters and daily products, hoping to brace through the difficult periods.

Will Thailand went into recession?
With Bangkok being the major engine of the country, many economists are expecting that the strong flooding in Bangkok would severely impact Thailand's GDP growth. Bank of Thailand (BOT) already downgrading their growth forecasts for this year to below 4%. Not yet negative, thanks to the first half of 2011. So, no recession yet unless there is not drastic measures taken by the newly elected government.

How serious is it?
First, the industrial parks in Ayutthaya provinces where houses many factories of multi-national companies are heavily impacted by floods. Obviously, Japanese automobile manufacturers being the hardest hit. Honda and Toyota already shut down their productions. Together with other companies situated there, their earnings sure will be affected.

Second, banks will be impacted by higher non-performing loans (NPL), in which companies and borrowers affected may not able to repay their loans.

Third, businesses in the city closed doors to prevent flash floods and riots that may happened. Domestic consumption will slow, very slow.

Forth, agriculture land was damaged. This will severely impact those rural people, and they have to takes weeks (if not months) to resume their activities.

Fifth, slowdown in sales for property developers is inevitable.

Sixth, flights and other transportation services disrupted led to earnings downgrade on companies such as airlines.

How about its impact to other countries?
While it was a bad experience for Thailand, other countries may benefiting from this episode such as Malaysia and South Korea. Why? Simply because those affected companies may swift their operations to other countries. Then, why Malaysia and Korea?

The most affected companies is from Japan, dealing in automobiles, digital camera and hard disk drive businesses. So, Japanese companies may potentially swift their operations or supply chains, either temporary or permanently, to Malaysia due to its strategic location and labor markets. 

Other than that, South Korea also is an ideal place for Japanese companies. We have seen this after the Japanese tsunami and nuclear crisis this year. This is not new anymore. Some interesting growth may surfaced in the automobiles and technology sector in South Korea.

What should be investors' positioning right now?
Generally, I don't think that Thailand will go into recession. Slowdown Yes. Thailand has more than enough financial resources to rejuvenate their economies. The rebuilding exercise should not be a problem. What we concern most is the execution part (just like Japan). For this investors should keep investing in Thailand selectively. Avoid banking, automobiles, agricultural and property sectors. Instead, hunt for those attractively priced counters in building materials, construction and healthcare sectors.

Countries wise, chose Malaysia and South Korea for the above mentioned reasons.

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