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Interviewer: Welcome to the latest in our Aberdeen Standard Investment Trusts podcast series. With me today is the manager of the Aberdeen New Thai Investment Trust. Orsen Karnburisudthi will be talking about developments in the Thai market over the past three months. Welcome Orsen. Now when we spoke last time, we talked about how Thailand had been relatively lightly hit by the virus with a few cases and even fewer deaths. Has that kind of relative success continued?

Orsen: Yes the success has continued. We've had virtually zero local transmissions since May. So it's been over two months where there have been no local transmissions. The only cases coming in would be returning Thais. 99% of these are returning Thais from other countries. The other 1% would be certain cases like diplomats or army military drills. But all in all, the figures are very controlled. The total number to date is just about 3,300 cases with 58 deaths, and that number of deaths hasn't changed for really the past two, almost three months.

Interviewer: And what has that meant for the Thai economy? I mean, has it meant that key sectors such as tourism have bounced back at all?

Orsen: The economic data were stressing monthly high frequency data just tilt down, compared with the same period last year. For example, June exports and imports are down in the range of 20%. What's improving is that this degree is less compared with the previous two months. So it's really coming from a shutdown, a lockdown, that began in March. So the low point was around April May and you're seeing resurgence, companies starting to start production again. The challenge with tourism is that your ports remain closed. And there's no plan yet. And in the next several months, probably the rest of this year, to allow international commercial flights. So we're expecting tourist numbers to be down to about seven to 9 million visitors this year. That's down 85% from 14 million last year, so it's down almost 80%.This is a figure coming from the Tourism Authority of Thailand. So we're struggling along with many other countries in terms of tourists. That said there was a domestic tourism scheme with a 22 billion baht stimulus that encourages Thais to travel up country, in the rural areas with subsidies in hotels, restaurants and transport. So to some extent that would offset the much lower figure from international tourists.

Interviewer: And so is most of the weakness in the GDP numbers coming from that tourism hit?

Orsen: From -- that's one of two areas. The other area would be exports. As you know, global trade US China for the past several quarters has affected not only global supply chains. So these two factors, tourism and global trade has really caused GDP to be very weak this year. So the latest forecast is in the range of 8 to 9% down for 2020. So central bank is expecting negative 8.1. The finance ministry just a few weeks ago came out with minus 8.5. So that's the figure we're seeing. The earlier estimate was in the range of 5 to 10%. So this is really a fine tuning of forecasts.

Interviewer: And looking at stock markets now, I mean they were obviously very volatile across the world for a period of time, but as they’ve calmed down a little and the picture has become a bit clearer, have you made any adjustments to the portfolio or are you largely happy with where it lies?

Orsen: In terms of the market, the big drop was in March followed by the very swift rebound in April. The past two months, June and July have been pretty flat. So pretty much the rebound, the drop from February March back to the levels of June, the markets are pretty much back to the levels of around February right before the Coronavirus hit. So the asset allocation, in terms of the rebound overall in equity has pretty much been back to the levels like I mentioned. And what's changed is now how stock selection is more important in the sense that if you choose to make stock adjustments -- as you say to the portfolio -- for the past three months, we made several changes to the portfolio. We trimmed down several sectors, concentrating holdings for example, property and banks. These two sectors, we exited several stocks. We also added new stocks to the portfolio, initiating stocks iin transport and retail and also in mobile phone information, communication technology type businesses, so it's more strategic adjustments in terms of sectors which we like and also specific stocks.

Interviewer: And how does the portfolio look today? Are there any kind of big themes that you’d draw out?

Orsen: Yes, the biggest exposures for the Trust -- the largest sector is energy and utilities. We are underweight that sector however, it's a bigger sector but it’s underweight. Just by way of we're new to energy but underweight utilities because of just valuations. The next largest sector is construction materials. This is strategically overweight, in the sense that the lower oil prices since March has benefited margins, especially since March and April. So you're seeing these in better relative performances in construction material stocks. These would include cement and tiles. The third largest sector is commerce. This is a big – a reasonable overweight in a sense. We like specialty retailers now so consumer staples are retailing in a sense in a relatively resilient sector within the stock market. For these three sectors, energy and utilities, we have about a 16% rate, construction materials 13 and commerce about 10%.

Interviewer: And, obviously you're talking to companies all the time. What feedback are you getting from them – are they generally optimistic, pessimistic? How are you finding their mood?

Orsen: I think they're more on the cautiously optimistic outlook in the sense that there’s been a gradual loosening of restrictions, but still wary, as is the government of whether there will be a second wave. That's what we're seeing in other countries. So far, we haven't seen any wave but I believe corporates are just being prepared and not being overly optimistic about the trajectory of growth. So retailers have seen a rebound. Rebound since March, April lockdowns. Banks are reasonably cautious in the sense that they have forbearances in terms of their loans. But they have set up a lot of provisions just to be cautious. Construction materials I mentioned, most companies have a pretty muted top line growth, demand will be flat and not down. But their margins will be better just because of lower input prices, lower energy prices, for example. I think overall, what you're seeing from second quarter results, companies are reporting weaker numbers, especially on the top line, most have weaker margins. I think the outlook is pretty, pretty cautious. Just looking at how spending -- how people are spending or how businesses are investing at this point.

Interviewer: And what about the impact on dividends? Is that caution reflected in companies still holding back on dividend payout?

Orsen: Dividends are paid typically as a percentage of profits. So, for the most part companies are maintaining their dividend payout ratios as a percentage of profits. The main exception would be banks where the central the central bank is encouraging banks to reevaluate the capital position to conserve capital and discouraging paying interim dividends. That said, banks capital positions are quite strong -- capital ratios of over 15, 16%. And any worst case scenarios could just take away one or two percentage points. So, I think companies, or at least banks, are just being conservative at this point. Other corporates have declared interim dividends thus far. And it's really just reflecting if profits are lower, then the dividends would be lower proportionally, but dividends are still being paid.

Interviewer: And the Trust has historically had a reasonably high yield. Are you reasonably confident that can be sustained for the year ahead?

Orsen: Yes, looking from the company’s -- the dividend yield, and the amount of yield that corporate and the Trust are paying, it still seems reasonably optimistic that the Trust could maintain a good dividend.

Interviewer: And I mean, looking at markets today, do you think they fully reflect the risk that is still out there? Or is it very much kind of sector by sector. Are there still kind of bargains to be found really amongst volatile markets?

Orsen: I think there are still surprises. Even when companies report their second quarter numbers, there’s still an immediate reaction to the share price either way, either it's a positive or negative surprise. For example, banks that announce large provisions, front loading their provisions, for example, had an immediate drop. That creates opportunities because these are the more conservative banks that are setting these provisions early. For example, construction materials companies, for the most part, have much better margins just because oil prices are low, because spreads have improved because of these dynamics and energy prices. So you're affecting that in the share prices as well. So, the market still sees opportunities, especially across sectors for views, sectors, which we believe will do well in this environment. And the way that our portfolio is positioned, we do like materials just by way of margins. We like commerce, just by way of the resiliency as well as prospects of top line growth.

Interviewer: And what is the Trust’s current position on gearing? Have you been able to use it to your advantage through this period?

Orsen: The gearing is currently 12, 13%. Pretty much unchanged over the past three months. It's just been used just -- as the market hasn't been too volatile. So we haven't really changed the gearing much. Part of it was used to pay for the Trust’s dividend that was paid earlier. But I think we're comfortable keeping around the 10 to 13% level in these circumstances. Of course, if the market drops sharply or increases either way, then I think we could readjust accordingly.

Interviewer: And just finally, could you give some of your views on the outlook for the second half of the year and what investors might be able to expect?

Orsen: The second half is going to be a recovery kind of outlook, just following the trajectory of the economy. The second quarter GDP numbers aren't announced yet. But that would be in the upcoming weeks. We're expecting the GDP drop of low double digits. I think the consensus is 13% compared with the second quarter of last year. If you work out how first quarter is, second quarter and the forecast for full year of about 8 to 9%, then we're seeing slight growth, positive numbers for the second half. So that's what we're expecting in terms of top line and profit momentum for sectors. Of course, this would affect certain sectors, for example, domestic oriented consumption, investment type, government spending type of exposures, and I think our Trust is quite well positioned to that respect.There's still challenges in the tourism and export sectors. Tourism would be reflected in the hotel companies and the airports companies. Even also medical tourism, these are seeing these same poor numbers before in the second quarter. And the outlook is still challenging, at least for the second half of this year. Beyond the second half we’re just thinking a continuation of the recovery. Back to spending, back to a certain sense of normalcy over the course of 2021. And for 2021, we're expecting a GDP growth of in the range of 3 to 5%, which isn't too bad. It isn't back yet to the level of 2019. But going to a certain level of normalcy, granted that global trade through exports or tourism isn’t likely to come back very quickly.

Interviewer: Great. Okay. Thank you Orsen for those insights today, and thank you to our listeners for tuning in. You can find out more about the trust at www.newthai-trust.co.uk. And please do look out for future episodes.

This podcast is provided for general information only and assumes a certain level of knowledge of financial markets. It is provided for information purposes only, and should not be considered as an offer, investment recommendation or solicitation to deal in any of the investments of products mentioned herein and does not constitute investment research. The views in this podcast are those of the contributors at the time of publication and do not necessarily reflect those of Aberdeen Standard Investments. The value of investments and the income from them can go down as well as up and investors may get back less than the amount invested. Past performance is not a guide to future returns, return projections or estimates and provide no guarantee of future results.