25 March, 2020
Novel coronavirus is understandably causing a lot of panic and uncertainty around the globe. While legislators scramble to contain the virus’ spread, investors are also being forced to make weighty decisions with very little information as they attempt to navigate market uncertainty and supply chain disruption.
This is particularly true in Thailand, which now has the highest number of confirmed cases outside of China. Cautious overseas investors have already withdrawn US$562 million from Thai equities to pre-empt further weakening of the baht as tourism numbers plummet. But is this smart decision-making, or a consequence of mass hysteria?
Kudun & Partners is a leading Thai corporate law practice based in Bangkok, with extensive experience of dealing with Chinese clients. In this article, we provide our insight into the threat of coronavirus to investors in Thailand at this extremely volatile time.
A strong economic partnership
Thailand’s close geographic, cultural and economic ties to China have long been one of its greatest strengths. Last year, Chinese investors overtook Japan to become Thailand’s most important source of foreign direct investment, submitting applications worth 262 billion baht (US$8.5 billion). This was bolstered by Thailand’s involvement in the supermassive Belt and Road Initiative (BRI) infrastructure project, developments along the Eastern Economic Corridor (EEC) and the US-China trade war.
Chinese tourists also accounted for the majority of Thailand’s record 39 million visitors in 2019. However, this is both the figure and the industry that is turning the two countries’ special partnership from a superpower to an Achilles’ heel.
Tourism revenue has been helping Thailand withstand recent depreciation of the baht against the dollar as it banks on future development projects such as the BRI, EEC and Thailand 4.0 to turbocharge its economy. However, the outbreak of the novel coronavirus has slashed arrivals from China and the rest of the world during the high season. Unless the situation is brought under control soon, Thailand could lose up to 132.8 billion baht in tourism revenue and income from imports.
Glimmers of hope
However, Thai authorities seem confident that they can combat and contain this disease, and have also not closed their borders to Chinese arrivals, as many countries have opted to do. This move has attracted criticism, but is demonstrative of the Thai government’s desire to maintain close economic relations with China and avoid further suffocating tourism revenue.
Their optimism isn’t wholly unwarranted—so far, Thailand is the most successful country at treating the new coronavirus. Several patients have been discharged from hospitals after being supplied with a breakthrough cocktail of antiviral drugs normally used on HIV patients. Meanwhile, Australia, Hong Kong and China are making significant progress with vaccines.
It’s also worth noting that although tourism and industrial stocks have been hit hard by the outbreak, other stocks are bucking the trend, with agriculture, finance, food & beverage and property funds rising by 6%, 3%, 2% and 1%, respectively. This could indicate that some sectors of Thailand’s export-reliant economy could benefit from the collective panic surrounding coronavirus.
The outlook is undeniably uncertain, as is the case everywhere. The unpredictability of a new virus isn’t unique to Thailand, but is causing investors to exercise extreme caution. Thailand’s response to coronavirus, however, could provide some interesting opportunities amid the chaos, while its decision to remain open to China at a time when other countries have shut themselves off could bring these long-time partners even closer together in the future.
We would encourage investors to exercise caution and to seek professional advice prior to making any investment decisions.
PLEASE NOTE: THE INFORMATION, FACTS AND FIGURES IN THIS ARTICLE WERE CORRECT AS OF THE FIRST PUBLICATION DATE (12TH FEBRUARY 2020).
FOR UP-TO-DATE INFORMATION AND ADVICE ON THIS MATTER, PLEASE CONTACT US FOR COMMENT.
For further information, please contact:
Troy Schooneman, Partner, Kudun & Partners
troy.s@kap.co.th
