8 newer and older reasons why I believe smaller and medium sized shares will keep performing well on the Thai stock exchange over the medium term.
Artificially ignored here for near a decade, now low interest rates and a struggling global economy leads smart value investors to re-discover the "real" Thailand.–
1. Smaller and mid sized stocks have been artificially ignored in Thailand for nearly a decade. Institutions have tuned them off their "radar screens" and Thai's themselves mostly want to speculate (day trade) on large and liquid companies. While this may be to the benefit of Thai brokers in the short run, it is not what most investors should be dominantly active in (In the regulated US, a brokerage firm will simply not allow a client to "just trade" his whole account on one large-cap as this is considered irresponsible).
2. Due to a variety of reasons, only a small and astute retail investment crowd ever developed in Thailand. Only speculators and traders were allowed to reign. Years of imposed ignorance on values and dividends, which persisted during the previous boom, have resulted in more and more "jewels" being under-priced. Sooner or later they must catch up and this is happening now.
3. In many cases, current dividend yields are double compared to larger cap stocks. In 5-6 years these growing annual payouts could pay back the whole value of today's still depressed stock price. Assuming a diversified portfolio, one can almost count getting back in half a decade the capital invested, just in annual dividends. This is because they remain amazingly undervalued. No big cap Thai stock can claim this!
4. Interest rates have collapsed to 30-year historical lows, and so high dividend yields will have to start looking increasingly desirable. In the old days, high yields on stocks meant little. But now Bank CD's pay only about 1-2%, vs. 12 to 15% for all the years up until mid-1998. This change makes a meaningful difference and investors are finally taking notice.
5. A stock is only really worth the discounted sum of all its future dividends, and this is then discounted back at a current relevant discount rate (Cost of capital). Since that appropriate discount rate is at historical lows, dividend paying stocks should witness increased share value. But this is rare in Thailand, as not many investors know about these "jewelsï¿½ and Thai brokers are understandably slow to seek these out. Thaistocks.com's focused strategic position on unearthing these real values, combined with on-location research is bringing these to light faster than most believe.
6. Some are skeptical because of the recent bear market and accounting scandals in the U.S. & Western markets. They go along with the line of thinking that if it is so bad in America right now, it must be even worse in other places like Asia. They do not know how wrong their inward thinking is! The SET index (Stock Exchange of Thailand) just recently hit a new 4-year high.
7. Value investing has been forced "in vogue" in SE Asia now. In the past, investors (this is the most overly abused word, as they should rightly be called speculators) did not focus on actually knowing or understanding what they own. Then 1997 Asian crisis forced investors to understand and place value on what they own!
8. The Stock Exchange of Thailand has a policy-goal statement to deliver an index far more accurately representing the *real* economy. Thaistocks.com welcomes this wake up call! An example, how many Thai investors own a food or agri-related stock? Yet, Thailand is the world's 5th largest food producer. It's almost irrational to invest in Thailand and not at least own one such company in your portfolio! Yet, the institutions and brokers rarely recommend any here. They still believe liquidity is endlessly priced and clients only want to speculate, even while they call themselves investors.
I am not anti-big cap! I am just obsessed with fair and good valuation, besides high cash dividend yields. Thaistocks.com works for global individual investors who do not have $3-5 million dollar minimums to invest per each company.
There are "bargains galore" when looking beyond the top 30 SET stocks. I welcome you to have a look for yourself at the more than some, I have identified over the past 6 years.
For sure it's more work and requires checking and looking, for sure there are questionable firms who operate obscurely … but just like when finding gold or precious stones, you got to go to work and get beyond the pebbles, dust and stones. In Thailand there are some real "diamonds in the rough".
Who has researched these ï¿½jewelsï¿½ for 15 years on-location, and is willing to do the hard work to find many more?
Paul A. Renaud
- from Morgan Stanley, USA – to 15 years on location analyzing the Thai Stock Market.
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