The new assessment into Thailand’s tires export to the U.S. is likely to pose a slight contraction on related stocks, such as Sri Trang Agro (STA), analysts said.
The U.S. ascertained that Vietnam’s currency was being undervalued by 4.7 per cent in 2019 against the dollar for the import of tires. They assumed that this was a deliberate action from the Vietnamese government on the exchange rate.
As a result, Vietnam may risk being labelled as a “currency manipulator” after the undervaluation assessment. The incident has encouraged the U.S. to also investigate Thailand, Malaysia, and Singapore.
According to The Federation of Thai Industries (FTI), the new anti-dumping investigation on tires being exported from Thailand to the American market is believed to be the result of the US-China trade war.
There are seven to eight tire factories in Thailand, mostly located in the Eastern Economic Corridor. Five of them relocated from China.
The investigation began on July 26, 2020, and is set to conclude on November 9, 2020.
There are more than 20 million auto tires exported from Thailand annually including passenger vehicle & light truck (PVLT) – of which the U.S. is the largest market with a 48 per cent hold in 2019.
The alleged dumping margins are between 106-218 per cent for Thailand. The U.S. imports of tires from Thailand were valued at US$2.7 billion or 1.1 per cent of Thai exports.
Thai stock market
SET-listed, Sri Trang Agro(STA) and its subsidiary, Sri Trang Gloves (STGT) are leading business firms on rubber products but they could be affected by the assessment.
Maria Lapiz, the head of Institutional Research at Maybank Kim Eng Thailand, said that there would be a small downturn on stocks related to the rubber export market.
The weak rubber demand already faced a drop by around 15 per cent in 2020 due to the COVID-19 outbreak and so marginal contraction will not be significant.
In a note to clients from MayBank Kim Eng, they said that STA’s management team are relaxed on this issue and will switch to buyers from countries benefiting indirectly from the COVID-19 outbreak.
Based on Bloomberg, there are six analysts covering STA who rate ‘BUY’ and only one who rates ‘HOLD’ with the average price target at 45.4 baht.
On Thursday (3:26 p.m.), STA shares stood at 26 baht per share, the same as its prior price, while STGT shares stood at 69.75 baht per share, a decrease of 0.50 baht or -0.71 per cent.
CLMV outlook in 3Q20
SCB’s Economic Intelligence Center (EIC) reported that CLMV countries were able to contain the outbreak and ease their lockdown measures relatively faster than other regions
However, both domestic and external demand is likely to remain depressed as a result of higher unemployment, rising cases abroad, and extended border closures.
EIC revised its 2020 GDP growth forecasts downward for all CLMV countries. The economic slowdown could also expose CLMV economies to longer-term issues and structural vulnerabilities.
There are specific risks remaining which requires monitoring, such as the effects of partial EBA withdrawal for Cambodia in August, the hazards of the credit rating downgrade and debts situation for Laos, the general election scheduled for November for Myanmar, and the resurgence of COVID-19 cases for Vietnam.
CLMV economic recovery is likely to be gradual and uneven across countries and sectors looking forward, said EIC.
