Two years after a constitutional referendum passed to set the stage for 2019 elections returning Thailand to civilian rule, and amid calculations that the US-China trade war will only fractionally hurt growth, Thailand’s stock market enjoyed political and economic momentum for an essentially flat performance on the MSCI Index through July compared with Asia’s overall 5% decline.

According to official estimates, the loss of machinery, plastics and vehicle exports in the first tariff waves of the Sino-US clash will be readily offset by new Chinese investment into Thailand’s US$30 billion high-tech Eastern Economic Corridor in particular, as rice and rubber shipments may also increase.

Gross domestic product rose almost 5% the first quarter, and the central bank and International Monetary Fund predict growth toward that figure for the year on a 10% tourism jump through June and state infrastructure spending.

Inflation is at the bottom of the target zone at 1.5%, and the fiscal deficit is manageable at a projected 3% of GDP. In external accounts, the current-account surplus, more than 10% of GDP last year, is “excessive” in the IMF’s view, but along with intervention from $200 billion in reserves it has preserved the baht’s strength against the US dollar amid capital outflows.

Monetary policy remains neutral, but household debt again swelled in the first quarter to almost 80% of GDP, as the Bank of Thailand governor vowed  to “break bad habits,” which may continue to depress consumption through the military’s promised exit from power.

With renewed activity, the Big Four banks announced earnings above estimates to boost share prices, with No 1 Bangkok Bank’s profits up 15%. More than half of personal borrowing is for credit cards, autos, and unsecured loans, with mortgages taking another one-third.

A Financial Times Research survey of 1,000 Thai consumers revealed that most apply 30% of their income to service debt, and almost half were refused additional credit during the past year. Bad assets are only 3% of the total, but the central bank is considering tougher “macro-prudential” measures to ensure deleveraging even as car sales were artificially lifted by 20% in the first half by a government tax rebate.

The Thai investor sentiment index compiled by the main capital market organizations improved in June and July despite net portfolio outflows and tighter regional interest rates.

Exports continue to advance at a 10% clip, especially electronics and commodities. Corporate bond issuance increased slightly from January-June, and the Bond Market Association raised the second-half forecast by $25 billion.

Chinese tourists, who account for one-quarter of the total, may stay away after the Phuket ferry disaster that killed 50, but that incident was eclipsed by the soccer-team rescue garnering favorable global headlines.

Philippines

In contrast to Thailand’s generally positive streak, the Philippines suffered a 15% MSCI Index drop through July as torrid 6.5% economic growth also spurred inflation and concerns over the current-account deficit. The peso is at a dozen-year low at 53 against the dollar, as the central bank begins to raise interest rates to reach the 4% inflation target.

The IMF expects the balance-of-payments gap to worsen to 1.5% of GDP as a currency drag, along with uncertain remittances from the Middle East.

Food and transport costs and 6% depreciation of the peso hoisted the Consumer Price Index by 5.5% in July, at the top end of the central bank’s forecast.

The Treasury recently rejected bids on 10-year bonds since yield demands were too high, as President Rodrigo Duterte’s administration continues its $170 billion “build, build, build” transport program. It will bring the budget deficit to more than 3% of GDP, against IMF and ratings-agency admonitions. Moody’s warned that the fiscal outlook could further deteriorate after the immediate effects of steeper excise taxes fade, and criticized the president’s “contentious law-and-order policies.”

Revision of the four-decade-old constitution, which imposes a presidential single-term limit, is another controversy upsetting foreign investors, who according to initial drafts will stay subject to minority ownership of land and local companies.

The so-called “charter change” was a centerpiece of Duterte’s original campaign platform nominally intended to create a federal system, but opponents including a former Supreme Court justice accuse him of a power grab at the same time as higher-cost staples and debt are starting to bite and corporate and political governance arouse deeper suspicions.