Cabinet Reshuffle Options

So there’s been a lot of news regarding a potential Cabinet reshuffle that has several people excited, here are some of the possible options

  • Timeline:  Early Aug, the reshuffle could take place, according to Nation newspaper mentioning a source from Government House.
  • Somkid – Industry Minister – Somkid Jatusripitak, a former Finance Minister in the Thaksin Shinawatra government, could replace Industry Minister Chakramon Phasukavanich.
  • Finance Minister – Finance Ministry’s permanent secretary Rungson Sriworasat is expected to replace Finance Minister Sommai Phasee.
  • Defence Minister – Deputy Defence Minister and Army Chief Gen Udomdej Sitabutr, who will retire as Army Chief in Sep, is being considered for the Defence Minister, to replace DPM and Defence Minister Gen Prawit Wongsuwan. However, PM Gen Prayuth has indicated that the position could be saved.
  • Deputy Defence Minister – Army Chief of Staff Gen Chatchalerm Chalermsuk, who will also retire, is likely to replace Udomdej as Deputy Defence Minister.
    DPM • Prawit would stay on as DPM.
  • Agriculture Minister – Prayuth’s classmate Gen Yodyuth Boonyatikarn might replace Agriculture Minister Peetipong Phuengbun na Ayutthaya.
    Public Health Minister – Sarana Boonbaichaiphruek, National Legislative Assembly (NLA) member.

Thailand’s Generals Don’t Have an Economic Plan

I’ve been sent this article too many times to count this past week, so here are my thoughts on it:

In a series of speeches, military leader-turned-Prime Minister Prayuth has claimed the country’s declining gross domestic product is the product of his valiant corruption crackdown (and partly weak exports, too). “It’s because some people spend money from illegal businesses and money from fraud,” he said June 5. “Now the government has come to set things right, causing that money to disappear.”

Well there are multiple reasons for it 1) Agricultural prices are down close to 50% 2) Exports are declining mainly because the THB was too strong versus the EUR and that Thailand isn’t the cheap manufacturing base that it used to be 3) Absolutely I agree that corruption is down and there is less dirty money flowing around the economy (land transactions have declined some 50% as well since the military took over)

Prayuth’s first step should be to accelerate the government’s $54 billion spending plans for roads, mass transit and other projects. Absent those improvements in infrastructure, Thailand won’t be able to keep foreign automobile manufacturers in the country, and thus retain its reputation as the “Detroit of Asia.” And with the Philippines already lobbying Toyota and other auto giants to relocate their Thai factories, Prayuth doesn’t have any time to lose.

1) Fully agree that they need to start spending, however I can see the issue with the civil servants asking themselves these questions – a) Why should they bother to approve anything as they won’t receive the %age’s they used to b) Why move quickly on a project and then potentially be in trouble, better wait for a full committee to approve to avoid being blamed in the future. c) The military should be gone within 1-2 years, fine I can wait. 2) Thailand will still for the next 5-10 years be the automotive hub for the region, the eco-system of parts is still unmatched compared to other neighbouring countries, however, if businesses/technology etc etc aren’t upgraded, then yes Vietnam/Indonesia post their own infrastructure spending will could comfortable take a decent chunk away from Thailand.

When you seize power, though, it’s best to have a plan. The chronic drift and uncertainty of the last 14 months is breeding a lack of trust from the trading floors of New York to the night markets of Bangkok. It’s undermining growth, deepening poverty and increasing the odds Thailand will experience a lost decade. And as the government’s economic argument loses force, the only authority it will have left is its force of arms.

Going through the history of coup’s I think this was one of the best executed coup’s in the history of Thailand. The removal of politicians, the implementation of new leadership, everything about the coup was handled with military precision. But they’ve been “unlucky” given how the soft commodities have collapsed and the agricultural workforce (~80% of the total workforce is in agriculture) are suffering and can only point their fingers @ the military for the moment. So here’s how I think they will try to get out of this…1) A massive increase in public spending 2) A debt forgiveness/additional loans/ to the agricultural workforce 3) Elections – I am now starting to doubt the possibility of elections in 2H16 and wouldn’t be surprised to see them postponed to 2H17. 4) They will hope (never a good thing) that the economy will improve, and that they can looked at and applauded for doing a wonderful job. 5) Will it turn out this way? Who knows..this country is called Amazing Thailand for a reason.

Source: Bloomberg

Lost Decade in Emerging Markets: Investors Already Halfway There

The financial media has been all over the story that Emerging Market’s are now no longer an attractive investment destination. And how can we disagree with GDP growth declining throughout the region, fund flow into European equities and fixed income continuing to accelerate and the US Dollar continuing on its tear. When the Fed first hinted about rate hikes in May 2013, we saw a huge sell off by investors throughout the region, so naturally the question is will we see a part deux of this occurring in September ’15? Or has this already been priced in?

There are several questions percolating in my mind at the moment and one chart I find most interesting from the article is the one below, would it be unreasonable to think that all currencies (or lets just say SE Asian ones b/c those I know) will return to ’06-’07 levels pre-QE spending? I don’t think so and then as a result of this, how should those of us involved in equities manage the portfolios..especially if you’re coming from a USD perspective?

ermgingcurrencies

 

Anyways onto the article, here are some snippets and link to the rest of the it.

  • Yet a confluence of powerful forces — notably a strong dollar, weak commodities prices, China’s slowdown and higher U.S. rates — will, at minimum, bridle growth.
  • The IMF still expects the world’s emerging economies to grow 4.2 percent this year, even as Brazil and Russia sink into recession. But that’s only 0.9 percentage points faster than the world economy as a whole, the smallest gap since 1999.
  • Granted, emerging economies are in far better shape than they were when past crises hit. While many companies have taken on debt, governments overall have reduced borrowing relative to their economies.

Source: Bloomberg