Is It Time to Take a Closer Look at Thailand’s (possibly) Undervalued Equities?
Understanding the Tension Between Value and Momentum Investing in a Volatile Market
The Value Investor's Dilemma
Investing in capital market instruments or securities involves making judgement calls on multiple levels...
Why do some assets trade below their inherent value?
What triggers a rebound in undervalued assets?
When is it too soon (or too late) to enter?
So-called value investors typically look at what they perceive the inherent value of a security to be and look to acquire securities whose prevailing market prized is lower than that perceived value.
This begs the fundamental question of why any security might trade at a market price that differs from inherent value. Research analysts try to identify factors that cause the mispricing of securities or of broader sectors of stocks.
Relative value investors might look to find greater value in one stock within a sector which might be felt to be undervalued versus either its sector in general or versus another stock within that sector trading at a much higher price to its relative value, which might be regarded as overpriced.
This doesn't really address the issue of why some stocks become underpriced and some become overpriced. A variety of factors are used to explain such pricing discrepancies but, on a stock, specific basis, a detailed examination of those factors is beyond the more limited scope of this paper which will focus on broader issues of investing in seemingly underpriced assets or seemingly overpriced assets, before considering the relevance of these issues to investing in Thai securities.
Why Some Assets Are Undervalued
With underpriced assets, three questions always strike us:
Why is this asset so unloved?
(e.g. business model issues, poor leadership, short-term profitability struggles)
· Why is the asset so unloved that the confluence of opinions that dictate market pricing doesn't reflect the perceived inherent value of the asset? Typical answers to this can be declines in a specific business model or leadership that have affected short-term profitability or balance sheet strength.
Has the market overreacted?
If performance hasn’t been as bad as the price implies, there may be opportunity.
Having identified the circumstances described above, investment analysts seek to determine at what point the negativity reflected in the asset price has been overdone. Although the asset may have been performing relatively poorly, has it performed as poorly as its stock price might imply? If not, there may have been an overreaction — giving rise to an undervaluation and an opportunity — assuming that it will ultimately return to its purportedly correct valuation level.
What are the triggers for recovery?
What events or shift will bring price and value back in line—and when might that happen?
This leads us to ask: if that’s the case, what are the likely triggers that will drive a return to what might be perceived as a more accurate valuation? How long might this take—and what is the potential uplift in the asset price?
🟦 Value vs. Momentum: Different Sides of the Same Coin
§ Value investing: Buying when prices are low, hoping for recovery
§ Momentum investing: Buying based on recent price strength, hoping the trend continues
A word of caution here – when a stock has become an underperforming or even a distressed asset, it’s not always clear when the bottom will kick in (both in terms of the price and of the deteriorating fundamentals).
It’s a long-held investment market belief that buying ‘fallen angels’ is akin to catching falling knives (i.e. extremely dangerous).
The timing of such an investment might be exceptionally sensitive, in that buying an asset, that is 20% below its market valuation might ultimately look like a very good idea if the asset returns to its fundamental valuation but in the meantime can result in an awful lot of egg on face if the price continues to fall and in doing so presents much more attractive entry opportunities as well as red ink on valuations.
As mentioned, it is essential to ensure that the fundamentals of the stock have stopped deteriorating and therefore that the inherent value, is no longer falling. In a sense, this is an extension of what George Soros has termed reflexivity, where changes in fundamental reality and changes in pricing become disconnected. The fundamentals might typically have stabilised or improved before the uptick in prices starts to kick in.
Conversely, momentum investing typically involves buying stocks largely because of positive price action. In this case it becomes important to maintain a discriminating perspective on the underlying fundamentals of the asset if the price continues to rise to a far greater extent than the fundamentals of the business continue to improve. In which case a valuation gap can emerge. When price momentum loses all connection to the reality of the fundamentals, this might be termed a momentum trap where new investors are attracted by the recent price action, seeing the recent past as a potential guide to the future, despite all the well-worn warnings that that is not the case.
In a sense, the difference between value investing and momentum investing, is that the former is basically taking a stand against the market in buying an asset whose price might be in the doldrums and falling further, or at best static, on the assumption that while the price may deteriorate further in the short term, there will ultimately be a payoff, when fundamentals and pricing positively converge, whereas momentum investing is predicated on the continuation of the factors that have driven a stock price. higher. However, it needs to be recognised that, at some point, there may well be a day of reckoning for momentum stocks, when price and fundamentals converge, but in this in this instance in a way that is very negative for the stock price.
Thailand Market Snapshot: March 2025
Market Recap: Thailand's Market Hit by a Series of Shocks
As of Thursday, March 27, the SET Index closed at 1,187.90, down about 3 points from the previous day and showing a -13.7% year-to-date (YTD) performance.
The following day, Bangkok was brought to a standstill after:
A major earthquake that devastated parts of Burma, and
A tragic construction collapse in Chatuchak, which led to multiple fatalities.
In response, the Stock Exchange of Thailand (SET) closed early that day.
Latest Performance Snapshot
Since then:
The SET Index has fallen a further 2%, bringing YTD losses to -15.9%.
Over the past 6 months, the SET has dropped nearly 20%, with losses worsened by the Baht weakening ~3.5% against the USD during that period.
In contrast, the Baht was slightly stronger than the USD earlier in 2025, but is now flat YTD.
Thailand vs. Global Markets
The real divergence in performance began around November last year, coinciding almost exactly with the US Presidential election—a moment that has brought uncertainty across Asia, particularly due to the risks posed by Trump 2.0 policies (e.g., new tariffs).
Long-Term Perspective (5-Year Return Comparison)
Market
5-Year Return
Thailand (SET)
+3.21%
Asia ex-Japan
+27.7%
Asia incl. Japan
+32.15%
Global ex-USA
+55.27%
Global incl. USA
+93%
NASDAQ 100
+156%
While Thai stocks have essentially gone nowhere over 5 years, other regions—especially the USA and tech-heavy indices like the NASDAQ 100—have significantly outperformed.
Over a longer term (5 years), investors in Thai stocks have gone nowhere (+3.21%), investors in Asia have done rather better (+27.7% for Asia excluding Japan or +32.15% including Japan), investors globally but excluding USA have achieved returns of almost twice that (+55.27%) and global ETFs including USA have returned over 93% whereas investors in the NASDAQ 100 have seen whopping 156% gains).[1]
So, Is It Time to Reconsider Thai Equities?
We are concerned about certain sectors, banking and construction being among these, but we note that ETFs following the MSCI Thailand TRN Index have almost 2/3 of their exposure to the following ten stocks:
As mentioned, investment decisions require many judgements calls but we think that it might be time to now consider whether Thailand’s fundamentals, especially in relation to these stock sectors, are so bad as to justify Thailand’s level of underperformance. We don’t expect the country to become any better managed – in our opinion you must be able to recall the halcyon days of 2008-2011 to remember when the country was professionally run in a way that we would find conducive - but we’re always aware that ‘Teflon Thailand’ has managed to thrive at times despite political upheaval.
Thai Equities: Worth Another Look?
A mix of telecommunications, energy, healthcare, infrastructure, electronics, and 7-Eleven (CPALL) currently offers a balanced sector exposure in Thailand—with some interesting valuation metrics:
Dividend yield: ~4%
Forward P/E ratio: ~13
Price-to-book ratio: just over 1.5
Of course, there are many more factors required to determine the underlying attractiveness and the suitability of such exposure within a portfolio right now, so while we wouldn’t couch this as a buy recommendation, we’re certainly of the view that Thai equities merit a closer look right now.
Bonds and Baht: More Caution Needed
On the flip side, we remain extremely cautious on Thai bonds. In our view, far better value can be found in sovereign and corporate debt outside Thailand.
We have been known for extremely successful, often contrarian and typically quite emphatic views on the outlook for the Thai Baht during the last 29 years.
However, at this time the ranging of extreme but opposite (i.e. both positive and negative) forces for the currency inclines us to a neutral view – it might not fluctuate much, or it could fluctuate extremely but in either direction. Some might not find that guidance helpful, but we have to be cognisant of the challenges that face us and we’d primarily look to avoid FX risk at this time rather than speculate for FX profit.
[1] While the world is currently in a furious tailspin about Trump tariffs, it is the NASDAQ and US assets that are most under threat from Trump unintentionally seeking to bring about a more level playing field – it’s almost as if he doesn’t realise that the prevailing system, by design, benefits America to the detriment of its trade partners. Equally, the rest of the world, especially the EU, also seems infected by this distorted Ricardian view and instead of simply allowing Trump to level a playing field that currently slopes in America’s favour.
MBMG Investment Advisory is licensed by the Securities and Exchange Commission of Thailand as an Investment Advisor under licence number Dor 06-0055-21.
For more information and to speak with our advisor, please contact us at info@mbmg-investment.com or call on +66 2 665 2534.
About the Author:
Paul Gambles is licensed by the SEC as both a Securities Fundamental Investment Analyst and an Investment Planner.
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