•    HOME   
•    NEWS   
•    BUSINESS   
•    INTERNATIONAL   
•    TECH   
•    SPORTS   
•    LIFE & TIMES   
•    OPINION   
•    MY JAKARTA   
•    BLOGS   

Ban Sa Phra. Shop owner Mhoo is one of millions in Thailand who have twice seen a government they voted into office get ousted by Bangkok’s military-backed elites.

He plans to join a “million man march” of supporters of deposed prime minister Thaksin Shinawatra in Bangkok on Sunday — the latest bid to reclaim power by the mainly rural Red Shirt mass movement that has transformed politics in Thailand.

But even as the latest flash point in the five-year political crisis draws nearer, foreign investors are turning increasingly bullish on Thailand. They were net buyers of Thailand-listed stocks for 11 straight sessions to Tuesday, with foreign net buying since the start of 2010 now at 12.65 billion baht ($387 million).

Their optimism is based on three factors — Thailand assets are already trading at a substantial risk discount, the economy has rebounded well from the ravages of the global downturn despite bouts of unrest, and the government of Prime Minister Abhisit Vejjajiva is widely expected to survive the showdown.

Yet the mood in Thaksin’s key strongholds in north and northeast Thailand suggests the medium-term risks for economic stability may be higher than some bullish investors realize.

Thaksin’s allies are likely to win elections that must be held by 2011, just as they have in every poll held since 2001.

The Yellow Shirt movement of royalist elites and military brass would almost certainly seek to overturn that result — possibly with a coup, as in 2006, or a judicial intervention, as in 2008.

“If it came to another election and Thaksin forces succeed and look like forming a government, there’s a very credible risk of further intervention by the establishment,” said Nick Owen, an Asia analyst with the Economist Intelligence Unit.

The Yellow Shirt movement argues that the poor lack the education to vote sensibly, and so the monarchy, military and bureaucracy in Bangkok must play an active role in overseeing the government and removing it if necessary. Sunday’s rally follows last month’s decision by the Supreme Court to seize $1.4 billion of assets belonging to Thaksin’s family on the grounds the tycoon abused power to enrich himself.

The ruling was welcomed by Thailand markets as a compromise that might reduce tensions — the court said $900 million of frozen funds should be returned to Thaksin. But it is unclear if he will ever be able to access those funds, and some analysts question how long he can keep bankrolling his political battles.

However, some say the existence of the Red Shirt movement need not undermine economic success. “Admittedly, the cloud of risk cannot be ignored, but it should not take away all the reasons to smile over the more attractive economic outlook for the Land of Smiles,” investment bank Macquarie said in a recent report.

Thailand assets already price in a relatively high degree of political risk. Despite a robust recovery from the lows they hit during the global crisis, stocks trade at just 10.1 times estimated 2011 earnings, the cheapest in Asia after Pakistan.

Markets emerged relatively unruffled from two previous showdowns — the November 2008 siege of Bangkok’s airports, and violent clashes in Bangkok and Pattaya last April.

Longer-term and direct investors remain wary, despite the recovery in southeast Asia’s second largest economy and confidence in the government’s fiscal policy.

The Board of Investment said foreign investment pledges this year could be 15 percent down from last year at 300 billion baht.

“A lot of the stock market and currency movements are being driven by a short-term outlook,” Owen said. “We’ll see more of an impact on longer-term direct investment, which certainly will suffer from instability.

“Some of the other Southeast Asian countries are doing reasonably well, like Indonesia, and investors are no longer considering big expansion in Thailand.”

Goldman Sachs said this month that much-needed infrastructure investment would suffer. “We believe the uncertainties in the political climate could weigh on the efficiency of government policy implementation, and the desire of the public sector to participate,” it said.

“Looking ahead, we believe this could put Thailand in a more disadvantaged position compared to its regional peers.”

  Analysis

Reuters