[KUALA LUMPUR] Even in a region where investors are accustomed to political risks, Thailand stands out.
Having weathered a dozen coups in the past century and a decade of Muslim insurgency, South-east Asia's second-biggest economy now faces a tentative transition to democracy which may reshape its political landscape.
Money managers have set such uncertainties aside to pour US$13 billion into baht-denominated stocks and bonds this year, the most across emerging Asian markets outside of South Korea.
"The Thai economy has thus far proven to be resilient and able to bounce back from political shocks," said Edward Ng, a Singapore-based fixed-income portfolio manager at Nikko Asset Management, which was overseeing more than US$170 billion as of end-March.
"Therefore, depending on the severity of each political event in Thailand, benchmark investors will still need to have certain exposure to Thailand given that Thailand is part of many bond and stock indices."
Global bond funds have boosted their investments in emerging-market debt to the highest levels in four years, as sub-zero yields in Japan and Europe bolster the allure of positive yields. The JPMorgan EMBI Global Core index has gained 15 per cent year to date, the best performance for the period since 2009.
Low inflation, a strengthening currency and an easy monetary policy have burnished the appeal of Thai debt, with yields on benchmark 10-year notes dropping 43 basis points this year and touching an unprecedented 1.53 per cent in April.
At a time when the rule of law has come under scrutiny in neighbouring Malaysia and the Philippines, a military-backed constitution aimed at paving the way for Thai elections in 2017 is drawing criticism from New York-based Human Rights Watch that the charter will further entrench the rule of the junta that seized power more than two years ago.
Overseas investors have bought US$10.2 billion of the nation's debt, heading for the largest annual inflows since 2013. The baht strengthened about 4 per cent in 2016 and reached a one-year high of 34.500 per US dollar last week.
The baht has gained since Thai voters voted in favour of the military-backed constitution on Aug 7. While the result makes it more likely the junta will stick to its current timeline of holding elections by late 2017, it has also raised concern about longer-term political stability and the lingering role of the current leadership and its influence over the appointment of the senate and prime minister.
"The constitution will make the military more powerful and allow it to remain to a very large degree in the driver's seat," said Michael Montesano, co-coordinator of the Thailand Studies Programme at the Iseas Yusof Ishak Institute in Singapore.
"They certainly want a more restricted democracy. The effort to institutionalise this kind of order through the new constitution will not work."
AllianceBernstein Holding LP has a positive near-term view of Thai debt, citing the prospect of further easing by the Thai central bank and the nation's sizable current-account surplus.
"Following years of political unrest, political risks are well recognised by the market," said Vincent Tsui, a Hong Kong-based economist at AllianceBernstein, which oversaw US$490 billion as of June.
"In fact the political development has been generally stable after the coup and that shall not be the primary consideration for foreign investors gaining Thai exposure.
Putting politics aside, Thailand's fundamentals have improved noticeably over the past quarters."
Democracy has had a chequered history in Thailand, which has seen 12 coups since 1932 and bouts of political violence. The country has been under military rule since a 2014 coup which had ended more than six months of turmoil that led to the ouster of Prime Minister Yingluck Shinawatra.
Insurgents in Thailand's three Muslim-majority provinces are seeking independence and have staged regular explosions. No one has claimed responsibility for two blasts late Tuesday in the southern province of Pattani, which killed one and injured 30.
"Investment opportunities will improve only after democracy returns in 2017," said Paul Chambers, director of research at the Institute of South East Asian Affairs in Chiang Mai.