Given the recent rate cuts by Europe, India, Australia,
Israel, South Korea and Turkey, Thailand has no choice but to
catch up with this trend in order to boost its economic growth
and guard against appreciation of baht.
Thailand, the second most populous Southeast Asian country, is
one of the more resilient economies compared with its Asian peers
with regards to the risk and headwinds from the US and Europe.
The economy has led the way in the Southeast Asian markets in
2012 and has managed to grow at an impressive rate even during
However, when the other economies gained strength this year,
Thailand gave the impression that its economy may be lagging
Can Anything Stop These Soaring Southeast Asia
What Went Wrong?
The Thai economy grew only 5.3% in the first quarter, below
the expected 6% and much lower than 19.1% growth in the previous
quarter. Like some other Asian nations, Thailand was hurt by weak
exports and tepid domestic consumption.
Last week, the government of Thailand reduced the GDP forecast
for the economy from 4.5%-5.5% to 4.2%-5.2% for 2013. It also
slashed the 2013 export growth target to 7.6% from 11%.
This comes in the wake of a strong currency, baht, which is
making exports expensive.
In fact, the baht has appreciated as much as 6% against the
U.S. dollar so far in the year, though it has fallen a bit in
recent days due to a strong U.S. dollar (read:
Is the Dollar ETF About to Surge?
In this environment of slow growth and a strengthening
currency, the central bank of Thailand took the initiative of
cutting the benchmark interest rate in order to boost the
country's economy, which is heavily dependent on exports for
growth. This was the first cut made by the bank this year,
pushing the rate down to 2.50% from 2.75%.
Investors have only the pure play option -
iShares MSCI Thailand Investable Market Index ETF (
- in the space, which provides broad exposure to Thailand
equities. Though the Thailand ETF has been among the best
in the Southeast Asia space gaining nearly 12% in the
year-to-date timeframe, the rate cut has pushed THD down by
nearly 2% in a single trading day.
The product seeks to match the price and yield of the MSCI
Thailand Investable Market Index, before fees and expenses.
Holding 94 stocks in its basket, the fund is still somewhat
concentrated from both a sector and an individual security
Financial comprises roughly two-fifths of the total assets
while energy companies make up another fifth. Beyond this,
materials, telecoms and consumer staples round out the rest of
the top five, making up a combined 28% (read:
Two Sector ETFs Posting Incredible Gains
). From an individual holdings perspective, the product puts
about 51% of assets in top 10 holdings and focuses on large cap
The product has managed assets of over $1 billion so far this
year. The fund has a pretty solid level of average daily volume,
suggesting that bid/ask spreads are relatively tight and that
total costs will not come in much higher than the 60 bps expense
ratio. THD has an annual yield of 1.59% (see more in the
Despite the fund's relatively heavy concentration, the
emerging market ETF still could be a solid choice for investors.
THD currently has a Zacks Rank # 1 or Strong Buy rating,
suggesting it would continue to outperform over the next one year
Zacks ETF Rank Guide
The ETF has been on the downside in the last few days due to
sluggish first quarter growth and rate cuts. In fact, this poor
performance has sent the fund's return below the
While the interest rate cut was widely expected, many were
hoping for a 50 bps reduction instead. So, at least part of the
reaction could be due to the lack of a bigger cut to hold down
Still, we believe that lower interest rates will take at least
a few months to improve the economy, and that THD could face some
weakness in the near term. Beyond that though, the fund could
rise once more, and continue to lead the Southeast Asia ETF world
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GLBL X ASEAN 40 (ASEA): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
ISHRS-MSCI THAI (THD): ETF Research Reports
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