Invested in Thailand
In 1932, Thailand peacefully changed its governmental system from an absolute monarchy to a constitutional monarchy. This friendly nation with vast lands of fertile soil, and borders with Myanmar, India, Indonesia, Malaysia, Laos and Cambodia, was set to thrive. Fast forward to the military coup in 2014, and the country has been at an economic standstill ever since. Thailand remains under military junta to this day, having had 29 prime ministers, 20 constitutions and 12 successful coups (out of 19 attempted).
While macro-wise this has led to time being wasted in terms of infrastructure spending and other regulatory advancements, good companies continue to do well though valuations remain elevated. It is likely that the Pheu Thai Party, which was ousted by the military in 2014, will get back into power again. We have seen time and again that when the military steps in, the ousted party grows even stronger. Even if they regain power, they will have to deal with a politically entrenched military who will continue to loom large over the government. This year’s elections come with a notable caveat – previously scheduled elections have been postponed every year since 2014. Despite these headwinds, Thailand has successfully managed to double its GDP per capita from the pre-Asian Financial Crisis peak.
In Thailand, we have a single investment in one of the leading banks, Kasikorn Bank. The bank was established in 1945, as Thai Farmers Bank, by the Lamsam family. The Lamsam family still has a large stake in the bank, albeit diluted during the Asian Financial Crisis, which is why the bank’s culture remains conservative. We like that the bank is biased towards small and medium-sized enterprises (SME) and considers various sustainability factors before lending. During our trip, it was impressive to see technology playing a larger role in Thailand, where two-thirds of Kasikorn Bank’s customers use online and mobile platforms. The bank expects this number to reach 80% in 2019. Faster loan approvals for existing customers, convenience and cost savings will benefit not only shareholders but also stakeholders, strengthening Kasikorn Bank’s positioning for many years to come.
Opportunities in Malaysia
2018 was a year of change for Malaysia. In an unexpected turn of events, 92-year-old former Prime Minister Dr Mahathir Mohamad secured an extraordinary election victory by ousting his former party, the United Malays National Organisation (UMNO), which has dominated Malaysia ever since their independence more than 60 years ago. After years of corruption under former Prime Minister Najib Razak, the Malaysian electorate voted for change.
Dr Mahathir is now promising a thorough clean-up of the political and economic system. The first order of business is to remove the most corrupt practises of the previous regime and to restore institutional integrity. The day after the election, groups of businesses benefiting from their relationship with former ruling government saw a quarter of their market cap wiped out as their licences to operate were questioned.
The direction of government policies is not completely clear, but appears positive, with the public demanding greater accountability from the elected government. Time will tell if we see lasting reforms.
On our trip to Malaysia, we met with Public Bank. They have a fantastic SME franchise, which they built by focusing on service and long-term relationship building. It also has a large mortgage loan book, particularly for owner-occupied properties, avoiding speculative property purchases. While mortgage penetration levels are relatively high compared with neighbouring nations, the household formation is still growing and there continues to be increasing demand for home purchasing. We like that the bank considers ESG risks as part of their lending criteria and has been investing wisely in IT, particularly in the area of cyber security. Their approach of building long-term trust with customers while avoiding risky assets should continue to benefit Public Bank and its shareholders.