April 12, 2010
Medellin, Colombia
As tectonic plates slowly drift over millions of years, an occasional fissure opens up in the earth’s surface. We call them volcanoes, and they provide a means for the earth to release some of the intense pressure that builds up over time.
Volcanic eruptions are typically harmless… the earth blows off some steam and everything settles quickly. In rare instances, though, when significant pressure builds up near highly populated areas, an unmitigated disaster can occur.
Over the last few days, several geopolitical hotspots have simultaneously erupted around the world– the violence in Thailand, the coup in Kyrgyzstan, the plane crash in Poland which killed its President, etc.
Kyrgyzstan and Poland are the harmless eruptions that generally blow over… nothing to worry about. Kyrgyzstan is only significant to US interests as a supply base for the pointless Afghanistan conflict, it’s only significant to Russia for ego, and it’s not really significant to the Chinese at all, even though they share a border.
Similarly, Poland has a strong economy and will continue to shine despite the untimely demise of its political leadership. While the plane crash was truly unfortunate, it may likely highlight how much an economy can succeed when it is unconstrained by bureaucrats.
Thailand, on the other hand, has some potential to be one of the disastrous eruptions.
When I was living there over the last few months, I watched the “Red Shirt” opposition group really step up its anti-government protests– their ultimate goal has been to force new, open national elections.
The Red Shirts have been vigilant in maintaining constant pressure on the current government, even employing creative tactics to garner attention like dumping blood in front of the Prime Minister’s house.
Most of their demonstrations, though, have been largely ignored… until now.
This weekend, the Red Shirts staged another protest in Bangkok that coincided with a major Thai holiday. As protestors stood eyeball to eyeball with Thai military and police forces, it seemed like just another day in Thailand– political demonstrations are incredibly commonplace in the kingdom, so nobody pays much attention.
At some point during the evening, however, gunfire rang out and all hell broke loose. Over 20 people were killed on both sides with hundreds wounded, and no one seems to know exactly where the gunfire came from or what started the violence.
If you want to see a first hand account of what happened, check out this video from blogger Tony Joh. He gives an incredibly balanced (and colorful) report with his boots planted very firmly on the ground in the thick of it.
(note: If you get squeamish easily, stop watching at exactly 7 minutes into the video.)
It’s funny how death can really get the ball rolling on political issues. A bill might be tied up in Congress for years, but the moment a 12-year old boy dies, suddenly it becomes important.
In Thailand, the protestors haven’t been able to make a dent in their goals despite months of their best efforts. The government has remained in control with the full support of the military, one of Thailand’s most powerful institutions.
Today, however, after so much loss of life, Thailand’s Army chief called for new elections. This is the clearest sign that things may actually be changing in Thailand, and it’s also fueling speculation that the initial gunshots over the weekend may have actually been staged by the Red Shirts.
To be clear, political instability in Thailand is nothing new. If it’s not political demonstrations, then there are rumors about the King’s health. If it’s not the King, then there’s a new dispute with neighboring Cambodia… it’s always something.
Most of the time, instability in Thailand is totally peaceful, and markets shrug off these events. Despite ongoing tensions, the Thai Baht has steadily appreciated for months against the dollar, and this provides an interesting indication of the market’s perception of risk: blood in the streets is a better bet than 30-year Treasuries.
Today, though, markets woke up to the realization that Thailand may be entering an extended period of instability; it could take months to sort out the consequent election issues resulting from this weekend’s bloodshed– and if something happens to their 82-year old king during that period, the country will be in real trouble.
The Thai stock index dropped 5% today, undoubtedly due to a rush of foreign capital being pulled out of the country. In the near-term, there may be significant buying opportunities in the market as solid companies become undervalued by capital flight.
I’m watching a handful of Thai stock like Bangkok Bank, Bumrungrad Hospital, and Krung Thai Bank, all of which have strong businesses, decent dividend yields, and US pink sheet listings.
