Matthews Asia Quick Notes on Thailand and Indonesia

Matthews Asia has a great website covering the situation and events in the region.  Yesterday’s postcard gives a quick overview of what’s going on in Thailand and Indonesia.

Matthews Asia Postcard from South East Asia

Week of May 18, 2012

A recent research trip I took to Thailand and Indonesia was a welcome break from watching gloomy macroeconomic data flash across my office computer terminals. Being on the ground, and literally on the streets, in Bangkok, Jakarta and several smaller Indonesian towns offered a reality check on the economic potential of Southeast Asian countries. This is not to say that these countries don’t face challenges at their respective stages of economic developments. But speaking face to face with management teams offered me a fuller perspective. 

In the case of Thailand, the country’s under-investments in flood prevention infrastructure was apparent when Thailand suffered from widespread flooding damage late last year. The floods destroyed major industrial estates and disrupted automobile and technology hardware manufacturing supply chains for months.
[GBP note: see our coverage of the floods in Thailand's industrial parks]

The current government was also criticized by both local and foreign investors for failing to react swiftly enough and to provide assurance of credible long-term natural disaster management solutions. However, since the Pheu Thai (PT) Party, led by Yingluck Shinawatra, was voted into office last July, I have sensed that businesses and consumers have moved forward from the fatigue of political gridlock. The most encouraging sign from my visit was that of stronger economic activity beyond the greater Bangkok region. Real estate, consumer lending, insurance companies and retailers are seeing increasing contribution to revenue growth from Thailand’s northern rural area or “upcountry.” This has come as agricultural sector workers have seen their incomes rise in recent years, and the development, in turn, should provide companies with a more diversified revenue base as their historical reliance upon the greater Bangkok market is reduced.

Meanwhile in Indonesia, the hot-button issue is the government’s plan to reduce fuel subsidies in an effort to better manage its fiscal stability and budget allocation. The proposal has since spurred national protests as well as resistance from other political parties. With the country’s growing car ownership and infrastructure developments, reform is critical in order to balance both the government’s fiscal health and the country’s need for affordable fuel. From speaking with a manager of a local auto dealer, I learned that the majority of cars sales 30 years ago were concentrated in the greater Jakarta area, but today he finds that other areas are outpacing the metropolitan area in sales. Indonesia’s economic outlook appears stable (Moody’s joined Fitch in upgrading Indonesia to investment grade status in January), and demand for a range of items—from such modern conveniences as fast food to larger ticket items such as automobiles—is robust. Indonesia’s presidential election is slated for 2014, and many will surely be focused on the country’s ongoing reforms and the challenges to come.
[GBP note:  See our news about industrial parks in Indonesia]

Lydia So
Portfolio Manager
Matthews International Capital Management, LLC

The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than large companies.

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