SINGAPORE - Thailand's stock market has become the symbol of investor disenchantment with China's economic reopening, going from market darling in January to Asia's second-worst performing market by June, with little sign of a turnaround.
Not only has the promised export boom and tourism boost from China's return after 3 years of pandemic lockdowns failed to materialise, a political logjam at home has become another drag on the SET index.
After a jump in early January, the market is now down more than 6% for the year, second in losses only to Malaysia.
"I'm surprised that we're struggling," said Jeep Chatikavanij, portfolio manager at Bangkok-based Ton Poh Fund.
"At the beginning of the year, I thought we were going to have wind in our sails. Our view was that the dollar has peaked, the Fed is done raising, and tourism is going to boost the economy."
"Although a lot of that has happened, particularly on the tourism front, we haven't seen the trickle down effect that we anticipated," Jeep said.
The biggest setback has been the rocky and uneven Chinese recovery. China is the largest consumer of Thailand's exports, particularly agricultural products. Those grew just 3.9% in the January-April period, as the pandemic-driven demand for electronics that spurred double-digit growth during the previous two years faded.
Thailand recorded a current account deficit of $0.5 billion in April, reversing a $4.8 billion surplus in the previous month, as exports contracted 4.9% year-on-year.
"We think China's weaker reopening momentum has had significant impact on the performance of Thai assets this year," said Pruksa Iamthongthong, senior investment director of Asian equities at abrdn, who is underweight on Thailand in the firm's flagship regional fund.
"Domestically, concerns have been around the impact of China's stalling recovery on the Thai economy. This has been reflected in the latest trade and export data."
Foreign investment out of the $550 billion Thai stock market stood at $995 million in May, marking the fourth straight month of outflows, the longest such streak in two years, data from Refinitiv showed.
They had rushed in early in 2023, spurred by a wave of optimism following China's exit from its zero-COVID regime. The Thai baht rallied 15% from its October low to a high of 32.565 per dollar in January. It now fetches 34.67 per dollar.
The stock market too touched a nine-month peak in January before giving up most of its gains.
At home, Thailand's politics have sapped sentiment after a progressive opposition Move Forward party and Pheu Thai parties thumped conservative opponents allied with the military, fuelling hope for an end to nearly nine years of army-backed rule.
But a government has yet to be formed, while a prime minister is expected to be selected only in August as frontrunner Pita Limjareonrat faces setbacks and challenges.
"You need to attach a certain level of political premium to Thai assets until we know which party is going to take over and importantly, who the new prime minister will be," said Johnny Chen, portfolio manager at William Blair's emerging markets debt team.
"As of now, there's still quite a high degree of uncertainty," said Chen, whose fund had reduced its Thailand exposure prior to the elections as valuations became less attractive.
Amidst those hitches, Thailand's tourism industry remains a bright spot.
The country received 11.4 million foreign tourist arrivals from January to June 11, and saw spending of 472 billion baht ($13.67 billion), surpassing the 11.15 million arrivals in the whole of 2022.
The government expects at least 25 million foreign visitors in 2023. That has also somewhat been reflected in the stock market, with the SET Tourism and Leisure Index less impacted than the broader gauge and slightly up on the year.
"We do expect Thailand's economic recovery to continue this year as tourism rebounds, and that should support the economy, private consumption, anchor domestic demand and also anchor Thailand's external balances," said William Blair's Chen.
"In the medium term, we still think there's some potential to re-enter Thai assets."
(Reporting by Rae Wee in Singapore and Patturaja Murugaboopathy in Bengaluru; additional reporting by Ankur Banerjee in Singapore and Gaurav Dogra in Bengaluru Editing by Vidya Ranganathan & Shri Navaratnam)