The Thai stock market has been trading sideways, with the MSCI Thailand index losing 2.3% year-to-14th December 2021 in SGD terms. This stems from a weak Thai economy that has been ravaged by lockdowns and closed borders. Thailand’s economy is heavily dependent on exports and tourism. While exports have held up, growing 15.7% for October 2021-to-date, it could not mitigate the negative impact in the tourism related sectors and also weak domestic consumption. Tourism has been devastated, with tourist arrivals at a trickle of slightly above 100,000 for October 2021-to-date. This is in stark contrast to pre covid-19 of close to 40 million tourists in 2019.
Figure 1: Thailand’s monthly tourist arrivals (million) – January 2007 to October 2021.
Source: Bloomberg, October 2021
Thailand started to reopen to fully vaccinated tourists with a pilot program for Phuket and Koh Samui in July 2021. It has since reopened the rest of the country in early November 2021. However, because of ever evolving travel rules in many countries, tourists are hesitant to make travel plans even as pent up demand appears strong. Domestic consumption has been weak as incomes have been reduced and the economic outlook has been uncertain. Consumer sentiment fell to its all time low in August during the strict lock down in 3Q21.
With 66% of Thailand’s population being fully vaccinated currently, the Thai government has said they will unlikely reinstate lockdown measures to tackle future outbreaks because the economic and related human toll will likely outweigh the pandemic toll. They also intend to keep the borders open despite new virus variants and periodic surges in covid-19 cases. If that holds true, 3Q21 is likely the bottom for the Thai economy during this pandemic. However, economic recovery in 2022 is expected to be gradual. This is because tourism is not expected to recover to pre covid-19 levels until 2023. Consumers could remain cautious as many Thais are financially stretched from job loss and lower income in 2020 and 2021. Export growth may also moderate relative to 2021 as global consumers switch to consuming services over goods with the expected further easing of pandemic measures worldwide. Therefore, consensus estimates have 2022 GDP growth at 3.9% even against a low base of 1% in 2021. Conversely, price-to-earnings (P/E) valuation at 17.7x for 2022 is at close to +2 standard deviation of the MSCI Thailand index’s 10-year mean. In other words, earnings would have to surprise on the upside for the broader market to go higher in 2022. Key risk remains economically detrimental measures that the government could re-impose to tackle the pandemic.
Figure 2: MSCI Thailand 10 year P/E chart, close to +2 standard deviation from 10-year historical mean
Source: Bloomberg, November 2021
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