Is Thailand now a good investment option?

Three years ago I sat on a beach in Thailand writing the business plan for this financial website, and it was interesting over the New Year to return to this Asian country and review the investment outlook for 2003.

The Thai economy is certainly in much better shape than it was in late 1999 on my last visit. The Government is about to pay off its remaining $4.7 billion debt to the IMF six months ahead of schedule, and the local stock market gained 17% in value last year - one of the best performances in global stock markets.

However, the numerous half-built skyscrapers that litter the skyline of Bangkok bare witness to the horrors of the financial crisis of 1997. Every half-built building is a hole in a bank balance sheet somewhere, and has probably wiped out the original developer entirely.

Now there are some signs of life, and a few cranes are moving again. From the vantage point of an old rice barge I noted two shopping centres along the river where construction has now re-started. And for 2003 the Thai Government has an optimistic target of 5% economic growth, though local economists thought 3% would not be a bad performance given the difficult international environment.

So is this the time to pile back into Thailand, well ahead of other foreign investors who are still nursing their previously burnt fingers?

With price/earnings ratios of major quoted companies around seven and solid dividends of 2.75%, there is good reason to believe that the Thai bourse offers excellent value. Indeed, much better value than still overvalued Western stock markets.

Contrarian investors like Dr. Marc Faber have been highlighting the attractions of Thailand in his column on AMEInfo FN for some time, and he seems to be right.

But reading the local newspapers still left room for caution in approaching this emerging market. A war in Iraq could upset the trade flow with the United States and cause the Thai economy unexpected pain. And it could certainly send the local stock market lower.

Yet perhaps if global capital markets plunge lower due to a war in Iraq then Middle East investors would be wiser to buy cheap Thai stocks in a country with real and immediate recovery prospects than head straight back into more expensive Western shares that may face a much longer road to recovery.

For the truth is that the Thai business cycle is recovering from a hit in 1997 and Western markets can only date their decline back to 2000. So logic suggests this entrepreneurial neighbor of the fast-rising Chinese economy offers the better investment opportunity.