Tisco: Politics derails fund inflow efforts

Written by changthai11 on Friday, October 10th, 2008

INVESTING

NUNTAWUN POLKUAMDEE

The Thai economy will clearly suffer in 2009 if political uncertainties continue to undermine development and investment policies causing investors to stay on the sidelines, according to Paiboon Nalinthrangkurn, the chief executive officer of Tisco Securities.

With the US and European economies entering recessions, Thailand needs to take steps to attract fund flows once the global markets stabilise.

While Thai stocks are relatively cheap in terms of valuations with a market price-to-earnings ratio of just 7.5 times, political risk will deter new fund flows for the near future.

Mr Paiboon said a recovery in the global market was not expected for another two to three years.

While the coordinated rate cut by the US Federal Reserve, the European Central Bank and other central banks helped boost liquidity in the market, the global confidence crisis continues to hamper operations for markets and companies alike.

Banks have been reluctant to lend due to uncertainties about the credit risk of counterparties, resulting in a sharp decline in liquidity in the markets.

The massive value of outstanding derivative instruments also continues to weigh on investor sentiment on fears of further losses for international banks.

According to the International Swaps and Derivatives Association, the total value of credit default swaps at the end of 2007 was $62 trillion. Outstanding loans and securities held by US banks, including collateralised debt obligations, totalled $23.21 trillion.

Mr Paiboon noted that according to the International Monetary Fund, potential losses for US institutions were as high as $1.4 trillion, or 10% of the US gross domestic product.

Even the US government’s plan to buy back distressed assets from banks may not be sufficient to address the crisis, considering that default rates for mortgages were rising sharply, leading to higher unemployment and slower economic growth.

“The US market is in a deleveraging cycle. The US GDP has been 70% driven by consumption, so the impact will be flat economic growth next year,” Mr Paiboon said.