Anti-government demonstrations on the streets of Bangkok came to a head last week as protestors attempted to storm the prime minister’s office and other state buildings.
After three years of relative calm in Thailand, the clashes in the capital have raised the spectre of renewed political instability and sent jitters through the markets.
For investors, the issue is whether this turbulence in southeast Asia’s second-largest economy is likely to prove short-lived or whether it could spark a deeper, long-running political and economic crisis. Many emerging market investors have already been spooked this year by concerns about the impact of the expected reduction in the level of bond purchases through the US’s quantitative easing programme.
Moreover, the memory of the Arab Spring uprisings in the Middle East is still fresh, and highlights the risk that a political and economic collapse in Thailand could result in contagion to other countries in the region.
The protestors, led by former opposition leader Suthep Thaugsuban, have called for the prime minister, Yingluck Shinawatra, to resign. They intended to replace her government with an unelected “people’s council”, alleging that her brother, the exiled former prime minister Thaksin Shinawatra, runs her government from afar. Mr Thaksin was ousted in a military coup in 2006 and fled the country before the end of his trial for corruption.
Ms Yingluck, who took office after leading the Pheu Thai Party to victory in the July 2011 general election, has resisted demands to step down. Although she remains popular with many rural voters, she has antagonised many urban and middle-class voters.
David Lebovitz, global market strategist at JPMorgan Asset Management, said the unrest is a reminder to investors of the “political risk premium” involved in emerging markets investment. In most of these countries, the political system is not as developed as in Europe and the US, he said.
“There is a possibility that social unrest could bubble up and you could see a political shock to the nation, which may have some economic side-effects. These things happen now and again, and very rarely do they result in a massive crisis,” said Mr Lebovitz.
James Syme, lead manager of the JOHCM Global Emerging Markets Opportunities fund, said the clashes in Thailand reflect a split between the rural poor and wealthier urban voters that has been evident for nearly 10 years, with neither side prepared to recognise the other’s legitimacy in winning an electoral mandate. This has resulted in a “governability problem” in the country.
That said, there has been a commitment to non-violence, argues Syme, with the police and army reluctant to get involved in the current clashes. “It is not even remotely the same level of political risk as in Egypt, for example,” he said.
In Mr Lebovitz’s view, the risk of widespread contagion from the current events in Thailand is much less than if they were taking place in the Middle East. He claims “different dynamics” were at play during the Arab Spring, notably a “religious undercurrent”, that allowed the unrest to spread to other countries in the region. The situation in Thailand is “much more contained”.
