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Crystal Ball:
The Year Ahead in
Capital Markets
Paul Gambles
14th January 2015
Disclaimer
This commentary has been prepared using information based on the research capabilities of MBMG
Group and represents the current opinion of MBMG Group. The opinions expressed are subject to
change without notice. Where information has been sourced from parties outside MBMG Group, these
are generally believed to be reliable but reliability and accuracy is not guaranteed.
This commentary is for informational purposes only and does not in any way constitute investment
advice and should not be construed as an offer to sell, a solicitation to buy, or an endorsement or
recommendation of any company or security in any jurisdiction. Nothing in this document constitutes a
formal legal opinion or constitutes investment advice. Each reader should consider whether this
research is entirely or partially suitable for their particular circumstances and, if appropriate, seek
additional, specific, professional advice. Neither MBMG Group nor its officers can accept any liability for
the consequences of any action taken or not taken as a result of reading this commentary.
MBMG Group is an independent researcher of information and does not provide investment advice or
asset or financial management in Thailand. MBMG Group is affiliated with MBMG Asset Management
Limited, a Mauritian institution that is authorized and licensed to provide investment management
services in Mauritius. All investments contain risk and may lose value and past performance is not a
guarantee or reliable indicator of future results.
2015 Outlook
What will the capital markets do in 2015?
They will…
… FLUCTUATE!
J Pierpont Morgan
2015 Outlook
Capital market trends depend on countless factors, including:
•
Economic performance (local, regional & global)
•
Public, market & media perception of local & global issues
•
Policy & politics (central banks’ policies & governments’ policies)
•
Investors’ capacity and propensity (often overlooked)
2015 Outlook: Global
Debt deflation:
The last global debt deflation was The Great Depression
High levels of PRIVATE debt constrain spending
This is being masked by artificially stimulated unsustainable asset
bubbles
One country has already experienced 25 years of this…
2015 Outlook: Global
Japan:
Japanese Change in Private & Government Debt
Japanese Gross Private & Government Debt
Crisis
275
250
GDP Percent change
200
8
175
6
4
150
-6
50
Private
Government
25
0
1980
1984
1988
1992
1996
2000
2004
2008
2012
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
-4
1990
75
1988
-2
1986
100
1984
0
1982
2
125
1980
Percent of GDP
225
Annual change in debt as percent of GDP
300
30
Crisis
Private
Government
25
20
15
10
5
0
0
5
 10
 15
 20
1980
1984
1988
1992
1996
2000
2004
2016
www.debtdeflation.com/blogs
www.debtdeflation.com/blogs
2008
2012
2016
2015 Outlook: Global
The United States is turning Japanese
Japanese Private debt change & unemployment
20
5
15
4.5
10
4
5
3.5
03
0
5
2.5
 10
15
Debt Change
Unemployment
GreatRecession
11
10
12
9
9
8
6
7
3
6
0
05
3
4
2
Debt Change
Unemployment
 15
1985
1990
1995
2000
2005
www.debtdeflation.com/blogs
2010
1.5
1
2015
6
3
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
www.debtdeflation.com/blogs
Percent of workforce
5.5
Percent of GDP per year
25
 20
1980
18
6
Crisis
Percent of workforce
Percent of GDP per year
30
US Private debt change & unemployment
2015 Outlook
To avoid the Japanese disease, Central Banks needed to be more creative
in their stimulus solutions…
… but most seem reluctant to let go of QE and austerity
= which only delays the inevitable re-set
= but until then Central Banks call the shots
2015 Outlook
For Thai capital markets…
Still 3 main challenges
• Political stability
• International trade
• Private debt levels
Thailand
Number of Foreign Tourists (in thousands)
8,000
7,000
6,000
Trade…
5,000
4,000
3,000
Weakening global demand
2,000
1,000
0
Thailand Exports Y-o-Y (% change)
30.0
25.0
20.0
15.0
10.0
5.0
0.0
-5.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
p
p
-10.0
-15.0
Figures: Bank of Thailand
Thailand - ASEAN
But trade with LVMC countries still growing
% of Total Thai Exports to LVMC
4
LVMC Imports (% Total)
3.5
3
2.5
2
1.5
1
0.5
0
Lao PDR
Myanmar
Viet Nam
Source: Bank of Thailand
Opportunities in physical and digital infrastructure
Thailand
High level of private debt…
Sources: BOT Paper “Rising Household Debt: Implications for Economic Stability” (October 2014) & CEIC
Thailand
…especially in lower income bracket
Sources: BOT Paper “Rising Household Debt: Implications for Economic Stability” (October 2014) & SES
Thailand
But plenty of opportunities…
…in infrastructure
Government approved THB 3.3 trn (CAD 120 m)
for infrastructure projects
• Rail (urban & inter-city)
• Road
• & auction for 4G LTE internet licences
Thailand
Infrastructure projects (win/win)
Direct investment flow:
Related private sector opportunities – materials, construction, finance
Indirect investment flow:
Infrastructure expenditure flows through to consumers – retail, finance
Needs to happen pretty quickly!
But..
The difference that the AEC will make this year…
Thailand - ASEAN
2015: Year of the AEC!
Not really!!
• Officially due to start 2015 but reality is a long process
e.g. European Union single market
• ASEAN countries today have far less in common now than EU countries did in 1992
• EU has important structures in place:
• a legislative body (Parliament)
• a watchdog to ensure laws adhered to (European Commission),
• court process (ECJ) to resolve disputes (individuals or states vs EU or states)
Thailand
Capital Outflows…
• Ahead of inheritance & property tax reforms
or
• Any perceived setbacks in Thai recovery or delays in
infrastructure spend…
… may lead to BoT cutting rates (weaker Baht)
Could exacerbate capital outflows in Thailand
Thailand - Summary
Baht will….
…strengthen when it becomes apparent G7 interest rates won’t rise,
…strengthen more on ongoing political stability/successful infrastructure,
…strengthen even more when G7 resorts to more stimulus
…weaken if BoT cut rates,
…weaken further in any political or legitimacy crisis
…weaken even further when tax outflows take place
Could see swings of +/- 5-10% through the year
Thailand - Summary
Ultimately hostage to the rest of the world - leaving SET/risk assets especially vulnerable to
exogenous shocks this year
Although RoW is in bad shape, global CBs are unlikely to give up without a fight, so assuming
those shocks self-correct then it all becomes about the domestic story
Even with declining global trade as long as the political situation remains stable and as long as
infrastructure is implemented the outlook is:
Volatile but moderately bullish for the SET
Very bullish for parts of it
Supportive of property and fixed interest
Overall: cautious with very selective risk focus
Thank you!
Disclaimer
This commentary has been prepared using information based on the research capabilities of MBMG Group and
represents the current opinion of MBMG Group. The opinions expressed are subject to change without notice.
Where information has been sourced from parties outside MBMG Group, these are generally believed to be reliable
but reliability and accuracy is not guaranteed.
This commentary is for informational purposes only and does not in any way constitute investment advice and should
not be construed as an offer to sell, a solicitation to buy, or an endorsement or recommendation of any company or
security in any jurisdiction. Nothing in this document constitutes a formal legal opinion or constitutes investment
advice. Each reader should consider whether this research is entirely or partially suitable for their particular
circumstances and, if appropriate, seek additional, specific, professional advice. Neither MBMG Group nor its officers
can accept any liability for the consequences of any action taken or not taken as a result of reading this commentary.
MBMG Group is an independent researcher of information and does not provide investment advice or asset or
financial management in Thailand. MBMG Group is affiliated with MBMG Asset Management Limited, a Mauritian
institution that is authorized and licensed to provide investment management services in Mauritius. All investments
contain risk and may lose value and past performance is not a guarantee or reliable indicator of future results.