Amid rising tension between Singapore and Thailand over Temasek Holdings' buying into Shin Corp, an informed financial source from a large Singaporean institution still hopes that both sides can clear up "these misunderstandings" to restore public friendship.

However, the institutional investor believes that Thai politics is the risk for foreign investors in the short-to-medium term.

The executive with a major institutional investor told The Nation last week he was surprised the Temasek-Shin deal had damaged Singapore's image in Thailand.

His company has a long history of relationships with both the private and public sector in Thailand. However, it is a low-profile portfolio investor and is unlikely to take a controlling or even too concentrated a stake in any Thai equity.

"We were actively involved in cooperating with both the banks and the government in helping Thailand in our own small way to recover from the last Asian financial crisis," said the source, who asked not to be named.

"During that period, we developed a deep sense of respect and admiration for the determination, ability and patriotism of Thai politicians, civil servants and corporate leaders.

"As such, we sincerely hope that the image of Singapore in the eyes of the Thai public can be repaired after any recent misunderstandings, and hope that the governments and politicians on both sides will do their best to clear up these misunderstandings with the public to restore a friendship, goodwill and trust that we value greatly."

Currently, he said, his company still sees positive medium and long-term prospects in the Thai market.

He said Thailand had been one of the more successful Asian economies in adapting to and engaging globalisation. The Thai economy had demonstrated very strong international competitiveness coming out of the crisis and competing with the rise of China in a range of niche manufacturing sub-sectors in specialist machinery, electronics, auto and auto parts.

Asked what sectors his company sees with high potential in Thailand, he mentioned a range of value-added services such as tourism, logistics, distribution, medical services and design.

"Even before the new airport was opened, the passenger traffic at Don Muang airport was bigger than at  Singapore's Changi," he said.

In the medium term, the executive said his company remained positive about domestic demand-driven industries, although banks, finance companies, mortgages, SMEs and micro-financing, construction, real estate and local tourism have yet to recover to their full potential after the 1997 crisis.

The government's mega-projects, if properly planned and implemented over the next few years, could be a critical catalyst in generating a more domestically oriented recovery and fulfilling this potential. "We thus also expect a growing number of equity listings in this area," he added.

If this favourable assessment of the medium-to-long-term outlook proves correct, it is reasonable to assume that his institution will look to increase its exposure to Thai assets in the medium term, he said.

However, all of the major risks to market prospects in Thailand seem to be political.

"We think the key short-term political risk is related to the conflicts between the previous and current regime. In particular, feedback from the private sector, politicians and analysts suggests that one of the main risks is the resumption of such political conflict and the resultant investor and economic instability," he said.

He added that other short-term risks included internal conflict over constitutional reform delaying a return to civilian government, which would upset investors and might postpone economic recovery.

Asked about how recent political change might affect the investment strategy of Singaporean investors, he said Thailand was constantly in the process of developing an "appropriate institutional framework" that is suitable and flexible enough to "accommodate democratic evolution of the Thai polity".

The challenge for Thais is to handle it as smoothly as possible while continuing to successfully engage globalisation with the least disruption to business and investor sentiment and the lives of ordinary citizens. A key step here is the development of strong, publicly accountable, democratic institutions, he said.

Jiwamol Kanoksilp

The Nation