There is literally blood on the streets. Protesters have been dumping it to prod Prime Minister Abhisit Vejjajiva to step down. And what are investors saying? Thailand is a buy. Both the baht and stocks are surging.

All this buying raises an obvious question: What in the world are they thinking?

There's even a role in this macabre tale for Tom Jones.
Much was made of the crooner of "Sex Bomb" fame showing up over the weekend for a concert. Surely it's a sign Thailand's political chaos isn't scaring the outside world, the media said. Jones played days after Kool & the Gang rocked Bangkok.

The real tune to which investors are singing along is to buy Asia. Euphoria over Asia's floats-all-boats rally is eclipsing the risk that Thailand's crisis will persist and disappoint investors.

"For me, if you're working on the basis that a rising tide carries all boats, why not be in another boat -- like Indonesia?" says Simon Grose-Hodge, a strategist at LGT Group in Singapore.

Abhisit rarely misses a chance to play up the stability he has brought since December 2008. Given that the anti-government demonstrators -- at times numbering as many as 100,000 -- staging peaceful protests in Bangkok since March 12 have made little headway, he has a point.

Eoin Treacy's view The Thai stock market was one of the best performers in the world as it broke out its base in 2003 and doubled by early 2004. The problem is that it hasn't posted a meaningful return since, largely due to political upheaval which has yet to be conclusively resolved. We have often said that governance is everything in markets and a distinct lack of credible democratic leadership has acted as a headwind for Thailand over the last six years.

Most other markets in the region have gone on to post impressive new highs but Thailand's SET Index continues to have difficulty sustaining a move above 800. Nevertheless, the Index yields 3.4% and has doubled since November 2008. It broke upwards from a five-month range last week having completed a reversion to the 200-day moving average and a downward dynamic would be required to check potential for a further test of the 2007 high.

Thailand has plenty of upside potential but has to sort out its politics before investors will feel comfortable investing beyond the relatively short term. The country's CDS spread at 100 basis points is on the less risky side of the sovereign bond spectrum but yields continue to rise suggesting bond investors are demanding a higher return for accepting the heightened political risk attached to the country.

If the SET Index sustains a move above 875 for more than a few weeks, we can probably conclude investors are becoming more sanguine about the medium to longer term economic and political outlook for the country.