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Thai investments risky
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July 15, 1997: 4:29 p.m. ET
Experts urge caution when bargain hunting among Thai stocks
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NEW YORK (CNNfn) - While the record highs being seen in stock markets across North America, Europe and Asia may tempt investors to look for bargains elsewhere, they may want to wait on Thailand.
The recent flotation of Thailand's currency, the baht, has kept both the country's currency and its stock markets down. The benchmark Stock Exchange of Thailand index has lost about 6 percent since the devaluation earlier this month.
The investment maxim "buy low, sell high" may not apply to the Thai market, many of whose companies have some tough economic facts to face.
"For the typical investor, the risk/reward is very dicey," said closed-end funds analyst Mike Porter of Smith Barney.
Analysts say Thai companies have become less attractive to investors because of heavy overseas debt. Thai firms currently carry an estimated $60 billion to $80 billion in overseas loans.
Experts say that as the baht goes lower, those companies face growing currency-rate-related losses.
David Roche, president of Independent Strategy, said Thai companies' large-scale, almost-structural indebtedness makes many firms unwise investments, despite the Bangkok stock market's recent decline.
For instance, he said, Thai banks might not have any earnings growth "for five years, or a minimum of three. So (bank stocks) wouldn't be a terrific buying opportunity."
Last week, Philippine monetary policy further hurt the Thai currency. Manila's central bank said it would let the Philippine peso move in a wider range against the U.S. dollar -- a move that lowered investor confidence in the region.
A look at the Thai funds rated tops by Morningstar, Inc. reveals some of the weakness in the Thai market:
- Thai Capital Fund. This Daiwa Securities fund has 100 percent of its issues in Thai companies, and is ranked first by Morningstar among Thai funds. It has struggled this year, however, losing 18.75 percent since Jan. 1.
- Thai Fund. Thai stocks make up about 95 percent of this Morgan Stanley fund's holdings, ranked second by Morningstar among Thai funds. Still, the fund is down 6.11 percent so far this year.
Little relief may be in sight for Thai firms. The government has offered assistance to companies hurt by the flotation, but Jeff Uscher, editor of Grant's Interest Rate Observer, said officials won't be able to help everyone.
"All of this is happening when you have a simultaneous crash in bond prices and a banking crisis which rivals Japan's in terms of scope," Uscher said.
"You've got a mess from start to finish, and so I think that the floating of the baht is kind of the bell that they ring at the bottom."
-- Randy Schultz
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