TO COUP OR NOT TO COUP? THAT IS THE QUESTION – PART I

Thailand’s first coup in 1932, also known as the Siamese revolution of 1932 was initiated by a group of military officers and civilians. Control was grabbed from King Prajadhipok and an end was put to Thailand’s centuries of absolute monarchy.

What exactly is a coup d’état?

A coup d’état can be defined as a sudden decisive exercise of force in politics which more often than not involves the sudden and illegal seizure of an existing government that is usually instigated by a small group of the existing state establishment.

What is with this “Coup culture”?

Since the Siamese revolution in 1932, over the past 82 years, there have been a total of 18 coups with 11 successful in Thailand, including the latest on May 22, 2014. Just considering the 11 successful coups, the frequency had been once in every 7.45 years!

A possible reasoning for the astounding number of coups could be that after the decades long reliance on coups as the default “reset” option, a “coup culture” was established. This could have resulted in an ideology that coups are the only solution to a political stalemate, which the most recent one had been in play since late 2013. In short, coups breed more coups. Not a very enjoyable cycle to be in – to say the least.

With a dearth in knowledge of Thailand’ social and political environment, the writer would not be qualified to respond on questions with regards to “how can Thailand get out of such a cycle”. The writer would instead move on to explore the effects this had on the equity markets.

How did market participants react to the situation?

The Stock exchange of Thailand SET Index (SET: IND) dropped just 0.6% the day after the military seized control of the country. According to a Bloomberg report, this was a smaller move than the average daily swing of 1.2% since 1987. Above is the Lyxor ETF THAI SET 10 (SGX:P2P) which is a market capitalisation-weighted index of the top 50 main stocks listed on the Stock Exchange of Thailand.

For a Thailand resident in their mid-30s, with the experience of at least 2-3 coups under their belt, one could assume that they wouldn’t be unduly fazed by such an occurrence. From the market’s reaction, it also appeared that market participants have also correspondingly adopted a “this too shall pass” mind-set with the probability of a political turmoil built into their valuation assumptions.

In a perfect world, information would be disseminated efficiently, alas humans struggle to make perfectly rational decisions under duress and thus prices may not fully reflect the extent of the situation. At current levels, investors would be wise to consider if equities are priced at “Margin of safety” type levels before diving head first into the Land of Smiles.

Otherwise, it might lead to us not smiling at the end of the journey!

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Cheong Mun Hong’s personal capacity and do not in any way represent those of his employer and other related entities. Cheong Mun Hong doesn’t own shares in any companies mentioned above.

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