Thailand - one of the largest and most populous nations in
Southeast Asia -- has been a laggard this year. If slower growth,
faltering consumer confidence and weak exports were not
enough, political strife came into the picture casting a
shadow of doubt on the resilience of the Thai economy.
Issues in Thai Economy
unrest to expel Prime Minister Ms Yingluck Shinawatra's
administration - built on the political structure of former Prime
Minister Thaksin Shinawatra - took a violent turn on December 1
when demonstrators went on to seize police headquarters and TV
stations, even causing the death of
The rallies protesting an
for transgressions dating back to the 2006 rebellion that expelled
former premier, Thaksin Shinawatra, the brother of the current
Prime Minister. As the protest flared up, it took the shape of a
drive to end the sufferings under Thaksin Rule.
The protest is hurting the government spending and all-important
Thai tourism industry. In fact,
countries issued warnings against visiting Thailand amid the
Naturally, concerns are building over economic growth as well.
In any case, Thai growth scenario has not been inspiring of late.
The growth rate witnessed its first quarter-on-quarter expansion (
this year in Q3 after falling 0.3% in Q2 and 2.2% in Q1.
Year-over-year, Q3 GDP grew 2.7%, down from 2.9% in the June
quarter, marred by a slump in household consumption and investment.
In addition, the Fed's possible scaling back of the QE program is a
nagging concern. Growth in the emerging nations like Thailand
depends largely on cheap dollars, the absence of which is sure to
take a toll the country's growth profile. Notably, Thailand saw a
outflow in FII in November (read:
Is the Thailand ETF in Trouble?
In order to reflect a lower-than-expected, year-to-date
performance, the Thai central bank slashed its 2013 growth forecast
to 3% from 3.7% projected earlier, and its 2014 forecast to 4% from
Steps to Boost Economy
Amid such a backdrop, in order to restore some confidence in the
nation's financial market and trigger growth, the country's central
bank unexpectedly had slashed its one-day bond repurchase rate by
25 basis points to 2.25% against analysts' expectations on November
27. The surprise move by the Bank of Thailand also looked to
counter the recent turmoil created by civil protests.
Continued drop in inflation rate (presently at
) and measured household credit growth also helped the Bank of
Thailand to take such a step. This is the
this year that Thailand cut its interest rate. The Bank of Thailand
has plans to go for a further cut should the protests extend.
The reduced interest rate spread cheers within the rate-sensitive
real-estate sector and sent Thai stocks on a rally last Wednesday
(November 27), with the Thai SET index rising
in session. The bond market also revived while the nation's
currency, the baht, fell against the U.S. dollar (see
Southeast Asia ETF Investing 101
Upturn Fails to Sustain
However, the applause was extremely short lived as the protest
escalated in December. The performance was also felt in the ETF
world. Thai ETF
iShares MSCI Thailand Capped ETF
) - that gained 1.56% on the day of the rate cut announcement -
slumped 2.43% on December 2, reflecting the heightened
We expect a short-term pullback in THD thanks to the recent
unsettling scenario. However, a pull-back is not always bad for a
product as it opens up a buying opportunity. As such,
investors may want to take advantage of THD's undervalued status
and ride on its long-term prospects.
The fund has a positive Zacks ETF Rank of 2 or 'Buy' rating and
could be an interesting pick for risk tolerant investors over the
long haul. At the current level, the fund does not seem to satisfy
the short-term investment purpose.
ETF in Focus
This is the only Thailand specific ETF and tracks the MSCI Thailand
IMI 25/50 Index. So far, the ETF has amassed about $551.0 million
in its asset base. It has an average daily volume of nearly 200,000
Holding 111 securities in its basket, the fund is concentrated in
the top 10 holdings which account for as much as about half of the
total. The ETF charges a reasonable 61 bps in annual fees.
Top three holdings Siam Commercial Banks, PTT Pcl and Advanced Info
Service make up for about one-fifth share of the fund. The fund is
heavily exposed to financials that make up for 35% of the share in
the basket followed by the energy and material sectors (see more in
Though the fund provides exposure to all caps, it puts more focus
on large caps at 77%. The fund has a nice blend of growth and value
stocks. THD advanced 7.14% in the last three-month period (as of
Investors might be in two minds over Thailand as the country is
encased with possibilities and perils. This ETF could be a good
choice for investors looking for a comeback in the Thai economy at
a relatively low cost.
The fund is now trading a little higher than its 52-week lows.
Economic indicators are as such on a revival mode and better than
many of its Southeast Asian neighbors.
That said, we would like to caution investors that Thailand might
struggle in the near term if the political tension shoots up
further. Also, the fund will be in jeopardy if a taper threat comes
Till then, risk-averse investors can opt for a wait-and-see
approach and enter the Thai market - only if the agitation in the
market cools off - as protests are likely to stifle the nation's
short-term outlook, but not necessarily its long-term potential
Time to Panic About Emerging Markets?
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