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Thailand and Vietnam: Political crises and investor confidence

12 Jun Thailand and Vietnam: Political crises and investor confidence

The past few months have proven to be a turbulent time for key economies in the Association of Southeast Asian Nations (ASEAN), especially Thailand and Vietnam. Is there any silver lining for investors, amid the current political and social turmoil?


Since taking over, Thailand’s interim military government has drawn up several emergency measures, such as implementing price insurance for rice farmers, to replace ousted Prime Minister Yingluck Shinawatra’s failed rice-buying scheme. The military has also pledged support for small and medium enterprises, and has opened discussions on tax reform and the creation of special economic zones.

Despite these efforts, analysts remain wary. Critics argue that the military leaders lack the expertise to effectively manage the economy, and policy mistakes were made after the last military coup in 2006. Currently, the official state estimate for Thailand’s economic growth in 2014 is 1.5 to 2.5 per cent, down from a previous forecast of 3 to 4 percent.

However, signs of optimism are emerging. For instance, the Stock Exchange of Thailand Index rose more than 4 per cent since the coup began, mostly due to buying by domestic investors as foreign investors remain uncertain of the country’s prospects. In addition, Thailand’s initial public offering (IPO) activity has kept up a positive momentum, with this year’s IPO pipeline at US$8 billion (S$9.9 billion). Consumer confidence has also risen for the first time in 14 months, according to the University of the Thai Chamber of Commerce.

Overall, analysts say that the Thai market will remain relatively resilient due to its strong fundamentals, but some ongoing market volatility is to be expected as the country battles with its prolonged political problems.


Last month’s rioting at factories in Vietnam may have harmed the country’s image as a low-risk investment destination. The fact that the riots have also hit industrial parks run by Singapore and other countries is especially of concern. Some commentators have suggested that the protesters were not solely motivated by nationalist anti-Chinese sentiment, but rather wider anger at foreign companies due to low wages and poor working conditions. The Vietnamese government has taken steps in response to the riots, for instance, offering tax-filing extensions and other benefits to affected companies, but it remains to be seen how effective this will be in calming investors.

According to an annual report published in May by the Vietnam Center for Economic and Policy Research (VEPR), Vietnam’s economic growth rate for 2014 could slow to around 4.2 per cent, from last year’s growth rate of 5.42 per cent. This is because Vietnam’s economy relies heavily on China and is at significant risk from the oil rig disputes.

However, some analysts have expressed hope that the growing tensions with China may give a positive impetus to the economic development of Vietnam in the longer term, if it prompts Vietnam to diversify its trade and investment links and become less dependent on China. It is unlikely Vietnam will abandon its existing close economic links to China, but it may now prioritise economic integration with its neighbours in ASEAN, or in negotiating new free trade agreements like the Trans-Pacific Partnership (TPP), which includes Singapore. Much will depend on the Vietnamese government’s ability to move swiftly and decisively to restore confidence among domestic and foreign investors.


What coup? Thailand stock exchange sees more gains [CNBC, 10 June 2014]

Thai coup raises fears for “sick” economy [Channel NewsAsia, 8 June 2014]

China will not endanger trade with Vietnam, experts say [Vietnamnet, 6 June 2014]

EM ASIA FX-Thai economic plan optimism lifts baht; rupiah down further [Reuters, 3 June 2014]