Trouble Stirs in Thailand: Here’s Why Not to Fret
Anti-government protests in Thailand over the weekend were a reminder of violent demonstrations in the recent past that have plunged the Southeast Asian state into instability. While the latest outrage was a cause of concern for investors, the risks appear to be contained, as of now, experts told CNBC.
Police fired tear gas in clashes with hundreds of protestors in the Thai capital Bangkok on Saturday ahead of a rally to overthrow the government of Prime Minister Yingluck Shinawatra in the biggest demonstration since her party came to power in elections in July last year.
In recent years, Thailand has witnessed bloody street protests that have led to a military crackdown and instability in local financial markets.
But country watchers said this time around there are some reassuring signs for investors. For one thing, Saturday's protests were much smaller than expected, while last year's sweeping election win for Yingluck's Puea Thai party means the government is underpinned by legitimacy.
"These protests are a concern after some of the violence we have seen on the streets of Bangkok in recent years," said Andrew Walker, associate professor at the Australian National University in Canberra.
"But the fact is that this was a pretty small protest, the royalist group that staged the protest was talking about getting half-a-million people on the streets and in fact they got about 20,000, so this was a very big disappointment for them," he told CNBC Asia's "The Call."
Thai markets appeared to take the weekend unrest in their stride. Bangkok's benchmark stock index was up 0.6 percent on Monday, outperforming most of its regional peers, and the Thai baht was steady around 30.65 to the U.S. dollar.
Thailand's equity market, with gains of about 25 percent this year, looks poised to end 2012 as one of Asia's best performing stock markets. Its economy, meanwhile, has held up relatively well in the face of anemic growth globally, bolstered by strong domestic demand.
Mayuree Chowvikran, investment strategist at Maybank Kim Eng Securities in Bangkok, said she did not believe the signs of renewed unrest would derail foreign investment into Thailand, especially from Japan, Thailand's biggest foreign investor.
"I think investors are still quite friendly towards Thailand and understand the situation," she told CNBC. She said she expected Japanese automakers such as Toyota, Honda and Nissan o continue with plans to relocate some of their manufacturing activity to Thailand from China because recent anti-Japan protests in China meant they felt the need to diversify.
(Read More: Adapt Now, Japan Firms Heed Message in China Dispute)
Sounder Political Footing
Country analysts said the Thai government, led by Yingluck, was on a strong political ground following a decisive win in last year's election and that was important in reassuring foreign investors about political stability in Thailand.
"What makes Yingluck safe is that when the country went to the polls last year, she won that election handsomely. She's only the second prime minister in Thai history to win an absolute majority in parliament. The first to achieve that was her brother, Thaksin Shinawatra," said Walker.
Thaksin was overthrown in 2006 in a military-backed coup and left Thailand in 2008, shortly before being found guilty of abuse of power. Opposition groups accuse the government of being a puppet of Thaksin.
"He (Thaksin) is an influential figure on the government, but it is clear that Yingluck has emerged as a capable prime minister, who has bought stability to Thailand after some years of very intense political conflict," Walker added. "It was only a week ago that Yingluck hosted a visit by Barack Obama and he very clearly endorsed her administration for a domestic and international audience."
Julia Goh, regional economist at CIMB in Kuala Lumpur agreed: "This government has a stronger political base and we think it will be more difficult to topple, so that is positive for economic stability."
"Political instability in the past has stifled key public investment and we really hope the government can implement some big ticket investments going forward," she added.
—By CNBC's Dhara Ranasinghe