Economists, fund managers and wealth firms are cautious about Thailand following the recent military coup but there is a distinct lack of panic, and some investors see plenty of opportunity despite the alarming headlines.

Wealth managers trying to figure out what to do amid the latest political turmoil in Thailand – which has seen the military take over a week ago - are cautious about the economic outlook and expect growth to be weak in the near term. For some bankers, though, the allure of the country's economy remains strong.

The country’s military have carried out a coup – not entirely surprisingly after warnings from the military several months ago – following over half a year of political demonstrations and escalating tensions between government and opposition. In the first quarter of 2014, gross domestic product actually sank 2.1 per cent from the previous three months. In 2013, GDP expanded 2.9 per cent. There is little prospect of that result being repeated this year.

The country has been locked in a bitter political struggle between its pro-government “red shirts” and anti-government “yellow shirt” protesters. Earlier this month, the country’s Constitutional Court ousted from office Prime Minister Yingluck Shinawatra for abuse of power.

While the specific details are complex – and often baffling to outsiders – the reality is that one of the “Asian tigers”, also renowned as a holiday destination for Western tourists, has seen its image badly affected by scenes of street violence and soldiers taking control. Standard & Poor’s, the rating agency, has said risk levels for its ratings have risen while Moody’s, another agency, said developments are negative for credit.

According to Prashant Singh, a senior portfolio manager at Neuberger Berman, the intervention, leaving aside moral or political considerations, should provide stability in the short run.

“The coup is viewed by some observers as a potential catalyst towards the resolution of the current political gridlock. Given the deep differences between the opposing groups, political reconciliation will not be straightforward or quickly achieved. Amid these ongoing political struggles, we doubt that an interim government with limited scope will be able to lift economic activity significantly,” Singh said.

On the economic side, he said that street protests held since last October have make consumers stay away and stopped the government from spending on important infrastructure projects. This has hit gross domestic product growth; GDP shrank by 0.6 per cent year-on-year in the first three months of 2014, the first time there has been a contraction since the flooding hit the country in 2011.

Some commentators actually raised their GDP growth forecasts after the coup, saying the military action might force reform. According to Reuters, a number of economists have upgraded forecasts.

One problem, Singh said, is that foreign direct investment has fallen as political uncertainties have risen; there has been a 45 per cent drop in projects submitted for incentives to the Board of Investments during the first four months of the year.

As a result, the Bank of Thailand, the country’s central bank, may reduce interest rates further to try and support the private sector, the said.

Due to such factors, Neuberger Berman is “constructive” on Thai domestic bonds but cautious about the country’s currency.

“We think that the extended political crisis, slow pickup in global demand, and lack of economic momentum in Thailand suggest that the country’s growth is likely to come in at the low end of the government’s 2014 forecast of 1.5 per cent to 2.5 per cent. This environment could provide continued price support to baht-denominated bonds, even though the currency may underperform over the medium term,” he added.

Cautious
At Matthews Asia, a US-headquartered firm that specialises in investments in the Asia-Pacific region, the approach is cautious. According to Robert Harvey, portfolio manager at Matthews Asia, the 22 May coup is not surprising because of Thailand’s history of repeated coups.

“All of this probably leaves investors questioning whether they should head for the exit. There is a sense that the process will be lengthy, and that a new constitution will be drawn, but so far the local financial markets have remained steady. The baht, and the equity markets have remained remarkably stable. This is partly because many investors have seen it all before. Political turmoil here is not new,” he said in a note.

“At Matthews Asia, we have been witness to such events in Thailand for over 20 years; we have invested in the country since 1996. While macroeconomic data has been deteriorating over the past few quarters as growth has slowed, we can expect a drop in tourism (which accounts for approximately 10 per cent of GDP) and a pause in investment activity to contribute further to near term weakness,” he continued.

“It seems probable that we may see earnings downgrades across many sectors. These downgrades will make current valuations seem less attractive. Nevertheless, fresh out of company meetings in Bangkok just days ago, our invest­ment team members have observed a `business as usual’ perspective at the company level. Some Thai companies are seeking to build more presence in emerging parts of Asia, and we might expect an accel­eration of such initiatives, should tensions be on-going.

“Over the medium term, we remain optimistic that a resolution can be found and that the country can begin to refocus on addressing some of the economic issues it faces,” Harvey added.

Luxury confidence
As an indicator of how confident some investors appear to be about the country's opportunities, despite the political situation, Asia Bankers Club, a club for bankers and guests providing investment opportunities; the club has partnered with what is called the Absolute World Group, “Asia’s leading and multi award winning lifestyle property developer”, to present an investment opportunity in Phuket, known as Twin Sands Resort & Spa. The development is, so the press release states, “nestled between two dreamy white sand beaches with panoramic views of the Andaman Sea.”

The investment opportunity offer to Asia Bankers Club guests comprises “guaranteed returns” via a capital guarantee buy-back at 150 per cent and rental guarantee of 6 per cent per annum for 6 years.

“The current political crisis in Thailand does not really affect Phuket and hence developer is comfortable to give you the guarantees - it's a rare opportunity for investors,” the release argues.