Riot police stand behind a pool of human blood poured by supporters of former premier Thaksin Shinawatra in front of the Democrat Party headquarters in Bangkok March 16, 2010.
Thailand's anti-government red-shirts take part in a motorcade procession around Bangkok, capital of Thailand, March 20, 2010. The motorcade procession by red-shirts took place as the anti-government movement, led by the United Front of Democracy against Dictatorship (UDD), staged a massive rally in Bangkok since March 12, aiming to pressure the government to dissolve the parliament and to call a snap election
Sacrificial blood may be staining Bangkok streets but it hasn't spilled over into Thai markets, low valuations showing more room for gains in stocks and the baht as investors rush for some of Asia's cheapest assets.
Despite a week of noisy protests in which the opposition made headlines emptying bottles of their blood outside the home and office Prime Minister Abhisit Vejjajiva, portfolio managers are crowning crisis-prone Thailand an emerging market darling.
Longer-term questions remain. Thaksin's allies are likely to win polls that must be called by 2011, and Thailand's royalist elites and military leaders would almost certainly seek to overturn that result, possibly with another coup.
"IGNORE POLITICS"
"The demonstrations have by and large been peaceful and this is taken as encouragement Thailand will see relative political stability going forward, enough for an acceleration of growth," said HSBC senior economist Frederic Neumann in Hong Kong.
That's music to the ears of those who see value in long-underperforming Thailand, where publicly traded companies trade at just 11.9 times estimated 2010 earnings, the second-cheapest in Asia after Pakistan.
They offer a dividend yield that averages 3.75 percent compared with 2.6 percent for U.S. stocks and just 1.3 percent for Chinese equities, according to Thomson Reuters data.
"As a value investor, I would just resort to buying the cheapest markets in the region right now, which would be Japan and Thailand. Ignoring the political framework there makes a lot of sense because it's all priced in," said Arnout Van Rijn, chief investment officer for Asia at Robeco Hong Kong.
Chris Wood, an analyst at brokerage CLSA, added: "If foreign investors become convinced politics has stabilised for now in Thailand, there is the potential for a significant catch-up rally led by foreigners buying bank shares in an economy which will be driven by pent-up domestic demand."
Thai banking shares .SETB have already risen 9.07 percent this year after more than doubling in 2009.
The sector, with its 12 listed banks, trades at an average 15.2 times estimated 2011 earnings, more expensive than 11.2 times for all listed Thai firms but cheaper than Indonesian banks trading at 16.6 times, according to Thomson Reuters data.
Wood added a percentage point to Thailand in his relative return portfolio last week at Vietnam's expense. He sees more room for gains in part because foreign investors sold a net $7.6 billion of Thai shares since July 2007 and have bought back just $2.1 billion since March last year.
Nomura International regional strategist Sean Darby likes Thai banks, especially Siam Commercial Bank SCB.BK and Kasikornbank KBAN.BK, which both recently raised dividend payouts. He is concerned about Thai politics but only if it hits tourism, which supports about 5 percent of the economy.
"In Southeast Asia, we prefer Singapore, Malaysia and Thailand ... aside from Indonesia, the region is inexpensive," Darby said.
THAILAND VS INDONESIA
Renewed attention on Thailand, Southeast Asia's second-biggest economy, is drawing comparisons with Indonesia, the region's top economy and long-time emerging market favourite.
Stocks in Jakarta .JKSE are up 8 percent this year, outperforming Bangkok's 3 percent rise and helped by a stable government, strong economy and credit rating upgrades.
But U.S. investment bank Morgan Stanley argues Thailand can steal some of Indonesia's thunder, upgrading Thailand this month to "overweight" and downgrading Indonesia to "underweight", noting attractive valuations overshadow Thailand's risks.
That all points to further gains in the baht currency, said economists at Barclays. Thailand's currency is up about 3.2 percent against the dollar this year, despite intervention by the Bank of Thailand, after rising 4.6 percent last year. Equity market inflows and a comfortable balance of payments surplus should translate into further baht gains, Barclays said in a view shared by several other foreign and domestic banks.
While lavishing attention on stocks, foreign investors have largely abandoned Thai bonds since an army-appointed government imposed capital controls in 2006. They were lifted in 2008, but foreigners account for less than 1 percent of trade.
Yields are steadily rising on expectations of a quarter-point interest-rate rise in June. Spreads between five-year swaps and one-year swaps have narrowed to an eight-month low of 179 basis points, indicating rate hikes are priced in.
Foreign investors have rushed into the "Land of Smiles", relieved by the lack of violence and confident Abhisit's 15-month-old government will survive, driving the baht to a 22-month high and stocks to a 20-month peak.
The $1.2 billion (800 million pounds) of foreign Thai stock buying since February 22 alone rivals all of last year's, when Thai stocks .SETI rose 63 percent and the baht was Asia's third-strongest currency.
The allure is simple for many investors.
Thai assets already price in a relatively high degree of political risk. Stock valuations are among Asia's cheapest and dividend yields are among the highest.
Investors see the peaceful protests as a turning point, and the economy is rebounding quickly.
Political risk hasn't disappeared but many doubt the mainly rura.
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