Thinking about Thailand

A week ago now I said something here about Thaksin Shinawatra, the prime minister of Thailand ousted in a coup in 2006 who has recently returned to face corruption charges.

Today I'll just briefly record the new developments there. Thaksin has pleaded "not guilty." Also, his request for a month-long trip to the UK has been granted.

Instead of covering the same ground I did last week about Thaksin's career, let's try to put it into a bit of context. In my day job at HedgeWorld we ran a story recently of a survey, released in November, by the consulting firm Oliver Wyman.

Wyman's study said that among hedge funds in Asia's debt markets, China and India are the two most popular destinations for their cash, despite the infamous illiquidity they can encounter in either place.

It found that Thailand was waaay down the list of desirable locales for such investors.

In fact, the list is this (name of country followed by the percentage of surveyed funds putting their money there).

China: 78
India: 76
Japan: 71
Taiwan: 59
South Korea: 45
Philippines: 44
Australia: 39
Thailand: 33
Indonesia: 30
Hong Kong: 29.

The significance of the list is perhaps not immediately apparent.

My take on it is this: such hedge funds make a profit only on inefficiencies. If a debt market is too well developed already, they'll turn away. Because in such a case, the assets are already priced at their value, and there won't be arbitrage plays.

On the other hand, the kind of inefficiency that makes a country attractive is of a specific sort. Hedge funds that are playing the credit markets aren't making their money off political chaos or inadequate infrastructure. They want stability, functioning courts, passable roads and reliable bridges etc. China and India possess both of these requirements. They've got the infrastructure that allows for the normal conduct of business, and they've got markets still inefficient enough for wily speculators to find profit opportunities.

A low place on that list, then, can be either good news for a country or bad. It's good news for Australia and Hong Kong, which both had efficient enough markets to scare off such funds. But its bad news for Thailand and Indonesia, where the basics aren't yet considered trustworthy.

The 2006 coup itself was presumably a large part of the reason for that in Thailand's case. I of course wish the people of the country well and hope that the routine resolution of the charges against Thaksin will prove something of a showcase for the routine functioning of a well-honed legal system.