Download THAILAND: THE AUTOMOTIVE HUB OF ASIA

THOMAS WHITE INTERNATIONAL
COUNTRY PROFILE | JUNE 2016
Capturing Value Worldwide®
Thailand: The Automotive Hub Of Asia
The services industry led by tourism and the farm sector also contribute to growth
KEY TAKEAWAY
The geographical
heart of Southeast
Asia, the Kingdom of
Thailand is more than
a pulsating, vibrant
tourist destination – it
is one of the biggest
economies in the region.
Heavily export-oriented,
Thailand, or the Land of
Smiles as it is popularly
known, is recognized
for the openness
of its economy,
and willingness to
accept foreign direct
investment.
The geographical heart of Southeast
Asia, the Kingdom of Thailand is
more than a pulsating, vibrant tourist
destination – it is one of the biggest
economies in the region. Heavily exportoriented, Thailand, or the Land of Smiles
as it is popularly known, is recognized
for the openness of its economy, and
willingness to accept foreign direct
investment. From virtual collapse during
the Asian crisis of 1997-98, Thailand has
managed to weather political storms,
including the disruption caused by the
military coup of 2006, and a disastrous
and calamitous tsunami, to build on its
status as an emerging Asian giant.
THAILAND AND THE WORLD
Nominal GDP ($)
404.8 billion
GDP Rank
29/195
Per Capita GNI - Nominal ($)
$5,370
Per Capita GNI Rank
118/213
Population Rank
20/228
Geographical Area Rank
51/257
Global Competitiveness Rank
31/144
Economic Freedom Index Rank
67/178
Human Development Index Rank
93/188
Major Industries
Tourism, Automotive,
Textiles, Tobacco,
Agricultural Processing,
Beverages, and Light
Manufacturing
Thailand today is the world’s largest rice
exporter, the second-largest tungsten
producer and third-largest tin producer. Having made significant progress in social and economic
development in recent years, Thailand’s growth from 2002-2006 has averaged 5.6%. Unlike its other
neighbors in Southeast Asia such as Laos, Vietnam, or Burma, Thailand was never colonized – and the
country’s developing, free-enterprise economy is slowly shifting from agriculture to manufacturing.
COUPS AND POLITICAL TURMOIL
Thailand, known as Siam until 1939, has been inhabited for around 5,000 years with the earliest
civilization believed to be that of the Mons in central Siam, although the first Siam state is the
Theravada Buddhist kingdom of Sukohthai. Among the most glorious periods in its history was the reign
of Ayutthaya, which was founded in 1351 by King Ramathibodi. One of the greatest centers of trade
and commerce in Southeast Asia, Ayutthaya attracted the scorn of the Burmese, who invaded the
kingdom twice in the 16th and 18th centuries. On the second occasion, the once glorious capital of
Siam was plundered, laid to waste, and left in ruins, a pale specter of its ancient glory.
Thailand has one of the oldest surviving monarchies, and the current Chakri dynasty was founded in
1782 by King Rama I with the capital shifting for the first time to Bangkok. The 20th century saw the
beginning of great change in Thailand. King Mongkut (Rama IV) was instrumental in developing a
strategy that enabled them to avoid the yoke of imperialism that overtook Laos, Cambodia and
312-663-8300 | www.thomaswhite.com
COUNTRY PROFILE | JUNE 2016
Vietnam –Siam’s closest neighbors. The
King’s strategy was simple: his ministers
signed unequal treaties that gave free trade,
extraterritorial rights, and special privileges
to imperial powers like Great Britain , France
, the U.S. , and Japan. The result was that by
playing each one of these powers against
another, Siam managed to maintain its
independence. In 1932, a peaceful coup
turned the country into a constitutional
monarchy, before Siam became known as
Thailand in 1939.
KEY TAKEAWAY
The land of Theravada
Buddhism has had a long
tradition of being one
of Asia’s most culturally
vibrant countries. With
miles of extended
coastline, Thailand has
some of the world’s
best beaches, ancient
architecture, friendly
people and unique
cuisine.
Controversially, Thailand sided with Japan
during World War II. The period following
the war was a chaotic one for Thailand as
it battled a number of military coups even
as dissatisfaction rose against rising inflation,
food shortages and inexperienced public
officials. The democratic elections of 1979
marked the first period of relative stability,
as the economy grew with the collapse of
military rule.
Bangkok boasts of Thailand’s largest temple, Wat
Pho or the Temple of the Reclining Buddha, which
is famous for its 46-meter long Buddha. The city also
serves as the seat for the traditional Thai massage.
The country was rocked by several coups
over the next two decades before violent
demonstrations in February 1991 forced
the military to relinquish power to a civilian
government led by Chuan Leekpai, leader of the Prachatipat (Democrat) Party. He is credited with
beginning the process of creating a completely new constitution, and instituted several reforms
that led to Thailand having one of the highest growth rates during this period. At the turn of the 20th
century, a relatively unknown party called the Thai Rak Thai Party (TRT) led by the charismatic Thaksin
Shinawatra came to power on the promise of economic reforms.
Thaksin delivered on his promises but was dogged by allegations of mass corruption. The devastating
tsunami that hit Southeast Asia in December 2004 affected Thailand too, causing nearly 5,000 deaths,
and eroding a major source of its revenue from tourism. In 2006, General Sonthi Boonyaratkalin led a
bloodless coup, deposing the unpopular Thaksin and holding fresh elections in December 2007.
A new party called the People’s Power Party, which consisted largely of members of the dissolved
TRT, won the most number of seats under the leadership of Samak Sundaravej, who assumed power
in February 2008. The then Prime Minister Sundaravej headed a six-party coalition. However, following
a court order that ruled that Sundaravej had violated the constitution by hosting a television cooking
show, he had to step down and was replaced by Somchai Wongsawat as the prime minister. The
situation though, continued to remain tense, as the People’s Alliance for Democracy (PAD) insisted
that both Sundaravej and Wongsawat were puppets of Thaksin. Repeated protests have been held in
Bangkok since May 2008 and five months of these protests considerably weakened the government’s
ability to implement policy. Matters came to a head when the PAD occupied the Bangkok
International Airport in November, stranding around 350,000 travelers. This resulted in a substantial
loss of tourism revenue and wielded a body blow to the country’s image as a tourist-friendly nation.
Eventually, Abhisit Vejjajiva, the leader of the opposition Democrat Party, rose to become Thailand’s
third prime minister over the course of four months.
Thailand functions as a constitutional monarchy with the Head of State being King Bhumibol Adulyadej.
312-663-8300 | www.thomaswhite.com
COUNTRY PROFILE | JUNE 2016
RICH TRADITION CREATES IMMENSELY
COLORFUL NATION
The land of Theravada Buddhism has had a long
tradition of being one of Asia’s most culturally
vibrant countries. With miles of extended coastline,
Thailand has some of the world’s best beaches,
ancient architecture, friendly people and unique
cuisine. Effervescent with life, it is one of the most
popular tourist destinations in the world. The wats
or Thai Buddhist temple complexes are richly
ornamented structures, replete with scenes from
the Buddha’s life as well as the ancient Hindu
mythological text, the Ramayana.
The Thai traditional greeting, the wai, involves
pressing the fingers and palms together at chest
level while slightly bowing the head. The wai is
always returned, and performs the twin functions of
greeting and showing respect.
KEY TAKEAWAY
It is a well-known
fact that Thailand’s
transition to a modern
industrial state would
not have been possible
without large inflows
of foreign investment,
which started pouring
into the country in
the late 80s and 90s.
Notably, Thailand has a
reputation for attracting
foreign investment,
thanks to fewer
bureaucratic hurdles
compared to some of its
neighbors in the region.
One of Thailand’s major tribes, the
Yao, migrated from southern China at
the end of the 19th century. Farming
remains the predominant occupation
among the Yao, known to be the only
Thai tribe to possess command over the
written language.
Among the most famous of Thai cultural shows is the
khon dance, which traces its heritage to the royal
courts of Siam. Nang Yai or the shadow puppet
show is a dramatic art form that originated during
the Ayutthaya period, and today is confined almost
exclusively to the southern part of Thailand. Various
tribes such as the Akha, Karen, Hmong, Yao, and
Lisu have their own unique and diverse way of life –
which all contribute to the rich cultural tapestry of Thailand.
FROM RICE BOWL OF ASIA TO EXPORT-LED POWERHOUSE
While Thailand’s sun-kissed beaches make tourism an integral part of the country’s services sector,
there is more that drives this South East Asian economy. In fact, a boom in the 80s created hundreds of
jobs in the manufacturing and services sectors, which led to a sudden onset of prosperity in the country
and nearly double-digit growth. Though the Asian crisis in the late 90s led to a temporary disillusionment
with free-market policies and a change in government, the country soon established itself as a favorite
investment destination in Asia, resulting in years of vibrant growth. Despite the challenges posed by
the tsunami devastation, military coups and floods, Thailand has experienced a meteoric rise from
being an agricultural economy in the 70s to an export-led powerhouse. In fact, the share of exports
as a proportion of the country’s GDP zoomed from 20% in 1980 to about 72% currently. The fact
that Thailand is the only country that belongs to the “upper-middle income” category in mainland
Southeast Asia is a testimony to the rapid economic progress it has made over the decades.
It is a well-known fact that Thailand’s transition to a modern industrial state would not have been
possible without large inflows of foreign investment, which started pouring into the country in the late
80s and 90s. Notably, Thailand has a reputation for attracting foreign investment, thanks to fewer
bureaucratic hurdles compared to some of its neighbors in the region. Fortunately for Thailand, the
investments made in the 90s to build infrastructure such as new roads and factories paved the way for
the country’s emergence as a major Asian manufacturer and exporter. Japan is the leading foreign
investor in the country, with a majority of the funds channeled into the industrial segment which
manufactures automobile parts. In fact, the Pacific island-nation accounts for about 50% of all foreign
direct investment in Thailand. Next to Japan and South Korea, Thailand has emerged as the largest
312-663-8300 | www.thomaswhite.com
COUNTRY PROFILE | JUNE 2016
KEY TAKEAWAY
Next to Japan and
South Korea, Thailand
has emerged as the
largest auto exporter in
Asia, prompting many
to call the country the
‘Detroit of the East’.
Another factor which
has spurred the growth
of labor-intensive sectors
such as manufacturing
is the steady supply of
migrant workers from
neighboring countries
such as Myanmar and
Cambodia.
auto exporter in Asia,
prompting many to
call the country the
‘Detroit of the East’.
After the Asian crisis of
1997-98, some of these
investments were routed
to China where cheap
labor was available in
plenty. However, with
wages rising in China,
Thailand was back on
the investment radar
for Japan and other
such countries. China,
which overtook Japan
as the world’s secondKnown as the “kitchen of the world,” Thailand is the world’s
largest economy, also
largest rice exporter.
has significant interests
in Thailand, with investments in railroads, telecom and automobile manufacturing. Still, China accounts
for just 10% of foreign direct investment in Thailand.
Another factor which has spurred the growth of labor-intensive sectors such as manufacturing is
the steady supply of migrant workers from neighboring countries such as Myanmar and Cambodia.
This is especially significant, considering the fact that Thailand has a low fertility rate and an aging
population. Thailand also has a geographical advantage as it is located not far from its trade partners
such as Japan and China. Still, being an oil importer, Thailand’s economy, and in particular its
manufacturing-based industries, are subject to the vagaries of global oil prices.
The services industry, led by tourism, is a major contributor to economic growth, bringing in about 45%
of the country’s GDP. As a positive, tourism can be banked upon as a reliable source of livelihood
for the people employed in the hospitality industry even during phases of tepid economic growth.
The inflow of tourists has also fostered the development of ancillary sectors such as entertainment,
hospitality and wellness tourism. Banking is an integral part of the financial services sector in Thailand,
thanks to the demand for credit from households as well as small and medium-sized businesses. The
banking sector in the country is led by state-owned lenders and some private commercial banks. A
number of these private banks have good corporate banking and retail lending portfolios, while others
have large international exposure.
While Thailand has made rapid industrial strides, agriculture still plays a role. Besides food crops such as
rice, most of which is exported, and sugar, the country is also a major producer of natural rubber, the
core commodity for tire manufacturing. Thailand’s fishing industry and agricultural processing sector
are thriving, with a special nod to the country’s billion-dollar shrimp industry. What’s more, the farm
sector accounts for 30-40% of jobs in the country and is a major source of income for Thailand’s rural
population. Still, the contribution of agriculture to the country’s GDP is grossly disproportionate at a
meager 7%.
THE URBAN-RURAL DIVIDE
Thailand has been plagued by volatile politics ever since the country became a constitutional
monarchy in 1932. Despite the intermittent military coups and repeated change of governments that
affected the continuity in economic policies, Thailand has made its mark among Asian economies on
various fronts. Successive governments, irrespective of their political persuasions, have tried to improve
regulatory efficiency that is crucial to a world stitched together by trade. Transparency became the
watchword and the process of starting a business was made less cumbersome by reducing the number
of approvals required. Though the official policy favors foreign direct investment, the government’s
influence is still palpable in many sectors where foreign ownership is prohibited.
312-663-8300 | www.thomaswhite.com
COUNTRY PROFILE | JUNE 2016
KEY TAKEAWAY
Thailand’s chugging
export engine has served
the economy well over
the years, though it is
subject to fluctuations
in external demand
recently evident during
the financial crisis of
2008-09. Alongside
export-led growth,
domestic investment
and consumption also
need to keep pace.
Thailand’s deep divide between
the relatively prosperous
capital city of Bangkok and
the poor, rural countryside has
often led to social tensions that
have defined the country’s
politics in recent years. To
put things in perspective, the
Bangkok-centered urban
dwellers comprise just 15%
of Thailand’s population, but
absorb 40% of the national
income, Ruchir Sharma points
out in his book, Breakout
Nations. Conversely, the rural
Bangkok remains the nerve center of Thailand,
households that account for
accounting for about 44% of the country’s overall GDP.
about 70% of the population
are largely dependent on paltry
farm incomes. Some popularly elected governments have tried to appease the large countryside
constituency with subsidies and handouts, which has left the middle - and upper-income class
aggrieved.
Thailand’s chugging export engine has served the economy well over the years, though it is subject
to fluctuations in external demand recently evident during the financial crisis of 2008-09. Alongside
export-led growth, domestic investment and consumption also need to keep pace. One way to
achieve this is to create and sustain the right social climate that reflects the interests of all stakeholders,
both urban and rural. Still, governments can help only to a certain extent to uplift the living standards
of their people. Businesses also play an important role by making investments and generating jobs to
complement government initiatives to reduce the income gap.
This publication is for informational purposes only. This publication is not intended to provide tax, legal, insurance or
other investment advice. Unless otherwise specified, you are solely responsible for determining whether any investment,
security or other product or service is appropriate for you based on your personal investment objectives and financial
situation. You should consult an attorney or tax professional regarding your specific legal or tax situation. The information
contained in this publication does not, in any way, constitute investment advice and should not be considered a
recommendation to buy or sell any security discussed herein. It should not be assumed that any investment will be
profitable or will equal the performance of any security mentioned herein. Thomas White International, Ltd, may, from
time to time, have a position or interest in, or may buy, sell or otherwise transact in, or with respect to, a particular
security, issuer or market on our own behalf or on behalf of a client account.
FORWARD LOOKING STATEMENTS
Certain statements made in this publication may be forward looking. Actual future results or occurrences may
differ significantly from those anticipated in any forward looking statements due to numerous factors. Thomas White
International, Ltd. undertakes no responsibility to update publicly or revise any forward looking statements.
312-663-8300 | www.thomaswhite.com
THOMAS WHITE INTERNATIONAL
Capturing Value Worldwide®
Are You Positioned for
a World of Opportunities?
THE THOMAS WHITE DIFFERENCE
“Our strategy is to
seek smoother, more
consistent returns by
stressing excellent
local stock selection as
opposed to betting on
major country and
sector moves.
To succeed in this
approach, we have
built an exceptional
global research team
that uses our proprietary
techniques to identify
the most attractive
stocks in each of the
major regions of the
world. This in effect is
our trump card.”
—Thomas S. White, Jr.,
Portfolio Manager
Thomas White International manages assets across multiple global, international and domestic
equity mandates. The diverse client base spans public, corporate, endowment, Taft-Hartley, and
separately managed account platforms.
Research is the heart of our company. At Thomas White, we believe that original research is the
surest path to superior portfolio performance. That is why our disciplined investment process is
supported solely by our in-house research.
Our investment process differs from the crowd. Our labor-intensive approach to valuing common
stocks combines the patient collection of data, and the execution of thorough historical studies,
with the application of fundamental securities analysis. These guidelines provide an investment
framework, which is used in the process of determining a company’s current business worth. Valuing
global stocks in nearly 50 countries, this industry-based stock selection process employs tailor-made
valuation frameworks refined and tested over the 40-year history of the Thomas White organization
and its predecessors.
Our veteran analysts, most with PhDs, on average have more than fourteen years of experience
working together as a team. Our proprietary research is generated by our professionals, both in
Chicago and in our Asia office in Bangalore, India, who have spent their entire careers at
Thomas White.
Our investment approach seeks to benefit from buying undervalued stocks and selling them when
they return to fair value. Our analysts find that investors tend to overvalue a company against its
industry peers when the intermediate business environment is favorable, producing strong earnings
growth and then undervalue a company when the environment depresses its business outlook. This
pattern is a reflection of human behavior - it occurs in every industry and country around the world.
It is this phenomenon that explains a stock’s wide price swings above and below its intrinsic value
as a business.
For more information please contact:
Gabriel J. McNerney, CFA
(312) 663-8318
[email protected]
thomaswhite.com
312-663-8300 | www.thomaswhite.com | © Thomas White International, Ltd. 2016