A rally in Thailand's ETF Monday means that the embattled country's stock market may be climbing the proverbial wall of worry, typical of bull markets, in the aftermath of the May 22 military coup.
Contrarian investors are taking advantage of the fear and bargain prices as the Thai junta unleashed thousands of soldiers in Bangkok to quell protests.
IShares MSCI Thailand ( THD ) jumped 3% to 75.72 Monday. It popped above both its shorter-term 50-day moving average and its longer-term 200-day moving average to confirm a technical uptrend.
THD has returned 10% year to date while losing 12% the past 12 months.IShares MSCI Emerging Markets Index ( EEM ) gained 2% and 2% in the same periods.IShares MSCI EAFE Index ( EFA ), tracking developed foreign markets, climbed 4% and 15% in those periods.
Thailand's gross domestic product contracted 0.6% in the first quarter, marking its first year-over-year decline since the 2011 floods. Political instability has clobbered tourism, business spending and domestic demand for imports. Capital expenditures fell 9.8% year over year in the first quarter, public investment crashed 19%, private capital spending fell 7.3% and tourism receipts dropped 6%, according to Credit Suisse.
Consumer spending and total investments declined year over year for three straight quarters, and the central bank may have to cut interest rates to shore up consumer confidence, says Credit Suisse.
Robust stock market returns in the face of negative economic news suggests that the stock market has already priced in the worst and anticipates a recovery.
"The positive drivers of long-term growth for Thailand remain in place, including a very competitive business sector and Japanese investment, as well as the potential for growth from the increasing integration of Thailand's regions and the neighboring markets of Myanmar, Cambodia and Laos into the global economic system," Mark Mobius, executive chairman of Franklin Templeton Investments, wrote in a commentary May 29.
He does not expect much disruption in business operations, although the stock market may be volatile until a new government assumes power.
"Many Thai corporations have historically managed to weather various bouts of political upheaval and even thrive in spite of them, proving the strength and resilience of the Thai people," Mobius added.
Southeast Asia's second-largest economy has a growing consumer class that will benefit consumer goods and services providers along with banks and the real estate sector, he says.
Investors also tend to sell at market bottoms while buying at tops. Investors pulled nearly $77 million out of THD so far this year after racking up $141 million in outflow last year, according to ETF.com.
THD trades at a discount on some valuation metrics compared with the emerging and foreign-developed markets benchmarks. It trades at 12 times forward earnings, 0.87 times book value and 0.84 times sales while yielding 4.5%, according to Morningstar. EEM has a P/E of nearly 11, P/B of 1.3 and P/S of 0.94. EFA trades at nearly 15 times forward earnings, 1.5 times book and 0.94 times sales.
The Thai baht has depreciated 0.4% against the U.S. dollar this year and 7.4% over the past 12 months.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.