While 2003 may have been a good year for the Thai stock market (the Stock Exchange Of Thailand Index rose over 130% during this period), 2004 was not so kind. A host of factors including an outbreak of bird flu, high oil prices and violence in Southern Thailand, caused the index to fall by about 15% last year. This made it the worst performing index in the region for 2004.

However in the last few months the market has rallied. In the 3 months ending 31 January 2005, the index rose 17% (Figure in SGD) despite the devastating tsunami that hit the Thai resort town of Phuket just after Christmas. Going forward the outlook for the equity market is positive, says Tan Aik Chye, fund manager for the OCBC Thailand Fund (click here for the factsheet). The fund rose 143.1% in 2003 and fell 15.2% in 2004, against a benchmark performance of 130.7% and -15.2% respectively (Performance figures are from fundsupermart.com, and are calculated using offer-to-bid prices, in SGD, as of end Dec 2004, with income or dividends reinvested).

PERFORMANCE* OF THE FUND VERSUS ITS PEERS AS AT 31 DECEMBER 2004

According to the fund manager, the upcoming elections bode well for Thailand. General elections in Thailand have taken place on 6 Feb 2005, and the consensus is that the current Prime Minister, Thaksin Shinawatra, will be rather easily re-elected. His handling of the post-tsunami relief efforts has raised confidence in his leadership and a Thaksin led government is expected to benefit the country.

BENEFITS FROM PUMP PRIMING

The fund manager says that the stock market should specifically benefit from government spending on infrastructure this year. As part of its plans to 'pump prime' the economy, the government has said that it will build a number of highways, railways, public housing and invest in the nation's transport system. According to Merrill Lynch, infrastructure spending could hit about a 1.7 trillion baht (1 USD = 38.46 Thai Baht) over the next 10 years starting from 2005. The fund manager says he's looking at building material companies and contractors, as infrastructure plays for his fund.

THE IMPORTANCE OF DIVIDEND YIELDING STOCKS

At the moment the dividend yield for the Thai equity market is around 3.5-4%, among the highest in the region. Tan says that the dividend yielding stocks are important for the fund, as they help to cushion the portfolio during periods of volatility in the market. "Let's say for last year, the stock yield is 3.5% and the market goes down 15%, the stock won't go down as much. Previously because of the crisis, they had to use their reserves and re-capitalize their balance sheets and thus they didn't have the dividend paying ability. Before the crisis, they were too focused on expanding, even into unrelated businesses. So the cash flow often is drawn down and not focused on dividend paying. But things are different now. They tend to listen to investors who usually prefer companies with capital management capabilities. Dividend yielding stocks will continue to occupy quite a fair bit of space in the portfolio."

The PE (price to earnings) ratio for the market is around 9.0 to 9.5 times, and earnings growth is around 8-9% (based on figures from IBES). The average PE for the fund is around 10 to 11 times, and earnings growth is about 13 to 14%. The fund is skewed towards large cap stocks due to liquidity reasons, although the fund manager says that large caps have benefited more recently from foreign fund inflows and may become overvalued. Another factor to consider is tax. "Now banks for example, which make up quite a bit of the market, are starting to pay tax this year. Once they start to pay tax, net profit after tax figures goes down, and so your Earnings Per Share (EPS) figure goes down too. So in order to look for growth, we may need to go beyond the large cap stocks."

RISKS FOR THE FUND

In the short term, potential terrorist attacks in the period leading up to the general elections are a concern. Recent government intelligence reports indicated that there may be a pick up in terrorist activities closer to the election date. In longer term, the risk is that both the government and companies will overspend. However Tan says that this is not a huge concern. "I tend to think that the government has learnt their lesson because that was what got them into trouble in the first place during the crisis. On the corporate side, dividends are speaking in their favour. Since they are increasing their dividend payout ratio and dividend yield is picking up, it means that they are not spending without care. It also shows companies are more aware of shareholders interest now."

He adds that overall, market volatility is on a downward trend. "On balance, daily volatility over the past few years when Thaksin was in power is actually declining. Going forward I think that with Thaksin re-elected, the volatility will continue to go downward."

---

Disclaimer: All applications for units in a unit trust must be made on application forms accompanying the prospectus. Investors should read the prospectus for details on the unit trust before deciding whether to subscribe for or purchase units in the unit trust. A copy of the prospectus can be obtained from the fund manager of the unit trust, or any of its approved distributors. OCBC Asset Management Limited's ("OCBCAM") unit trusts and investment products, except for guaranteed funds, are not obligations of, deposits in, or guaranteed by, OCBC Bank or OCBCAM or any of its affiliates. An investment in unit trusts, and/or other investment products is subject to investment risks, including the possible loss of the principal amount invested. The value of units and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in this website, are not necessarily indicative of future or likely performance of any unit trust.

Any opinion or view presented is subject to change without notice. The information provided in this website may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies. You must make your own assessment of the relevance, accuracy and adequacy of the information provided in this website and makes such independent investigations as you may consider necessary or appropriate for the purpose of such assessment. Any opinion or estimate provided in this website is made on a general basis and is not to be relied on by you as advice. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of you acting on any information, opinion or estimate provided in this website. OCBCAM reserves the right to make changes and corrections to its opinions expressed here at any time, without notice. Investor may wish to seek advice from a financial adviser before making a commitment to purchase the product. In the event that the investor chooses not to seek advice from a financial adviser, he should consider whether the product in question is suitable for him.

OCBCAM, its related companies, their directors and/or employees (collectively known as "Related Persons") may have positions in the products mentioned in this website.OCBCAM and its Related Persons may be engaged in purchasing or selling the products mentioned in this website for themselves or their client.

OCBCAM does not take into consideration the tax implications of the income earned as the tax position of each person is different. Investors are advised to seek independent tax advice on their personal tax position arising from investing in the fund.