03 September 2008

Avoid Thailand, Malaysia Stocks on Politics, Credit Suisse Says

By Chen Shiyin and Chan Tien Hin

Sept. 3 (Bloomberg) -- Investors should avoid stocks in Thailand and Malaysia as political turmoil in the two Southeast Asian nations intensifies, Credit Suisse Group said.

Thailand, which entered a state of emergency yesterday, isn't a buying opportunity yet because violence there will continue and the nation will become ``ungovernable,'' the brokerage said in a report today. Credit Suisse analysts also kept their ``underweight'' rating on Malaysian stocks, saying a power struggle between the government and opposition leader Anwar Ibrahim is heightening risks to the economy.

``These kinds of events will be a long-term negative,'' said Scott Lim, who helps manage $431 million as chief investment officer at CMS Dresdner Asset Management Sdn. in Kuala Lumpur. ``For long-term investors, who are a lot more risk averse, they don't see it as an opportunity. They want to stay out of the market.''

Thailand's SET Index has dropped 24 percent in 2008, and fell yesterday to the lowest since February 2007 after Prime Minister Samak Sundaravej issued the emergency decree. Malaysia's Kuala Lumpur Composite Index has retreated 25 percent after the ruling coalition had its worst electoral performance in five decades in March. They're the worst performers among Southeast Asian stock markets this year, after Vietnam.

The political upheavals come as economic expansion in the two countries slows. Growth in Thailand may ease to 5.5 percent in the second half because of a decline in exports, Finance Minister Surapong Suebwonglee said last week. A state agency said on Aug. 25 the economy expanded 5.7 percent in the first half.

Economic Growth

Malaysia's economy grew 6.3 percent in the three months ended June, down from 7.1 percent in the first quarter, the central bank said on Aug. 29. Gross domestic product may expand 5.7 percent this year, the slowest pace in three years, the Ministry of Finance estimated.

Thailand's SET Index dropped 2.3 percent yesterday, the most since July 16, after clashes between pro- and anti-government factions in Bangkok left one person dead and 43 injured. The gauge fell as much as 0.8 percent today. Protestors are vowing to continue the standoff, with unions threatening a major strike today.

``Political upheaval provides a buying opportunity only if a resolution is within sight,'' Credit Suisse analysts Dan Fineman and Cem Karacadag said in a report today. ``The current situation remains far from reaching anything resembling equilibrium.'' They advised investors to avoid building-material companies and buy shares of telecommunications, consumer and media companies. The analysts didn't name any stocks.

Siam Cement Pcl, Thailand's biggest maker of the construction material, has dropped 32 percent in 2008. Advanced Info Service Pcl, the country's largest mobile-phone carrier, has dropped 8.8 percent this year.

`None The Wiser'

In Malaysia, Anwar is seeking to oust the ruling coalition on Sept. 16 by convincing ruling lawmakers to defect to the opposition. The opposition leader, who last week was sworn in as a lawmaker after winning a by-election, was charged last month with engaging in homosexual relations. He pleaded not guilty.

The charge heightens the political tension that has weighed on the country's stock market since the March election, which weakened Prime Minister Abdullah Ahmad Badawi's leadership.

``While we are a step closer to political conclusion, we really are none the wiser as to what that outcome will be,'' Stephen Hagger, a Kuala Lumpur-based analyst at Credit Suisse, wrote in a report today. ``Malaysia offers some value versus the region, but it is not really cheap enough to justify the risk.''

Other brokerages are also forecasting tougher times for the two markets. Southeast Asian markets have ``not yet approached levels where visible risks have been fully discounted,'' Goldman Sachs Group Inc. said in a Sept. 1 report, citing concerns over the political outlook in Malaysia and Thailand.

``We've been underweight in Thailand for the better part of the last two years because of a continuation of the negative domestic political sentiment,'' said Beat Lenherr, who oversees more than $20 billion of assets as Singapore-based chief global strategist at LGT Capital Management. ``Malaysia faces similar problems and we're heavily underweight there as well.

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