Economics: Thai stock poised to hit 1,000 amids Global Economic Torrents

/ October 17, 2010

 

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By Pooky, Thai Intel’s economics journalist

Terry, Thai Intel’s editor, has a friend who was a high-ranking officer in the US intelligence apparatus. He told Terry the following: “I do not trust the Chinese. There is something in their character and in their philosophy that they can be your best friend one second, and the next kill you.”

If Thai Intel readers think all spies and intelligence related books are just a bunch of foolishness, Thai Intel readers are wrong. Take Norman Mailers big thick book disclosure that when there was only the CIA-the CIA would recruit and promote only those agents with American sports background-that is entirely true.

That friend of Terry that I have mentioned-was a college and professionals baseball players. Today, he is one of Hillery’s adviser-got there because of his track record-such as the day after 9/11-then retired, the CIA called him up to go active again.

My little introduction, is just to say, most of us, as outside observers, only see the tip of the iceberg. Like when the Economist says a “Currency War” has broken out-we do not have a clue where it is coming from-like we say to ourselves-things like: It is so irrational or that we can use reasons and logic to decipher the code involved.

But the fact is, most people do not understand what is really going on.

Thailand‘s stock market is about to break the 1,000 points and the Thai leaders are talking about a GDP growth for Thailand that will approach the 10% level this year. Both are massively critical “Psychological” points. But the global economy is in a torrent-particularly in the currencies and commodities markets. Individually, from country to country, most are also facing country specific economic torrents.

The combination-of outside macro forces and inside micro level forces-has produced a period of great opportunity and risks-as can be sen by the increase in global arbitrage and leverage plays.

Last Wednesday, I had a 4 hour conversation with a Thai importer and exporter-on my way to one of Thailand national parks area-where he wants to buy my log-home.

“Thailand could be facing another financial crisis,” he tells me-days before a famous Thai economist came out blasting the Thai government and central bank that Thailand now risks another financial crisis.

“Thailand is looking great this year because of last year’s base was so low and that low base, also came off many years of depressed based since the 2006 coup. What Thailand is going through now is a euphoria, especially since the Red Shirts were crushed and authoritarianism is in control. To business people, globally, that means an improved political climate,” he said.

Thai Intel is a big fan of Seeking Alpha, a blog that conglomerates the most interesting and cutting edge insights on the world of investments-into one place. And Seeking Alpha is hot on the MIT (Thailand, Indonesia and Malaysia) and that means the MIT are now on the radar scope of mainstream global investors.

What that means is money flow. And what that means, when coupled with a positive trade balance-are just simply a hardening currency.

Today, it seems everyone is talking about “Global Imbalances” and the way to solve it, is for a “Balance Globe.” In economics, as always, the currency is a major regulator of trade flow. Many factor impacts the currency levels, but mainly it is the confidence in the currency.

One way to look at it is just simple, a country with long run deficit-will see its currency weaken-thus making the country a cheaper place-comparing to others-and other more expensive compared to that country-and thus over time the deficit lessens. This process takes place globally with every country-and it is the main mechanism that keeps the “Globe in Balance.”

That mechanism off course-is very often controlled for policy objective. Such as China keeping its currency cheap-or even the US going for a cheap currency now. Where is the real market force? Increasingly, no one knows. Is everything that is happening now-part of a policy smartly hidden? The reason this is important concerns international relations where international laws is about “fairness.”

For example, is it fair for China to keep its currency low to capture the American market and then feed the profit back into America to feed that purchase? Or is it fair, that Chinese workers work for little so the Americans can live a great life-financed cheaply by the Chinese.

But again, Terry’s friend I mentioned at the start of the article comes to mind-in that there is more to it than economics-but also Geo-Political.

Concerning Thailand, the Thai central bank governor, said it pretty clearly, that Thailand is just a very small country. The stock market capitalization to the Thai GDP is nothing much-and the prospect of the Thai stock market is not that significant. The economic euphoria Thailand will experience-will gyrate the economy into a more risky position-but Thailand is a well diversified economy.

But the danger, are clear-Thailand today is under an authoritarian rule-meaning everything is controlled and critical policies are not deliberated-but rely on the skill of the few.

Thus far, there are both positive and negative signs coming out of Thailand. Structurally, the economy is adapting to the market forces-with some intervention. The difficulty however, is if that adaptation is flexible enough-to re-adapt to a new global environment-if that new global environment emerges.

Thai Intel just wants to remind our readers-that the levers are there-to manage the fluctuation-but if the lever begins to be “Institutionalize” that is entirely a different game.

The problem for a country like Thailand, where the overall competitiveness has fallen massively in the past few years-is that fall reflect the management capability of Thailand’s top people. And add to that poor skill-the authoritarian structure of Thailand-the Thai economic system itself-and from the global forces-Thailand is not fundamentally in a position to weather great uncertainty.

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