Thailand: Country With A Promising Future?

It has been approximately two and a half months since the Thai army staged a coup purportedly to increase the country’s economic and political stability. And even though they promised to exit as soon as possible, there is a growing realization that this may not be for quite some time. Unease seems to be increasing among the population, and it would behoove General Prayuth to speed up the process of reconciliation and hold elections.

25 fund managers (we at DMS Funds are not among them) have made an appeal to the ruling junta as foreign investment sentiment is now turning sharply against the country, and there is the real threat of foreign capital inflows diminishing substantially. A slowdown in foreign capital inflows could present the country with a blow from which it may never recover, as a sense of this reoccurring would be a possibility in investor's minds. In fact, while we’ve created a mutual fund comprising 33 of the largest and most widely traded stocks on the Stock Exchange of Thailand (SET), we’re holding off on bringing it to market until the current economic and political situation has settled.

Democracies are messy, but they always manage to sort out their problems when the political parties are left alone. There is still time for General Prayuth, who may have Thailand's best interest at heart, to announce an election date, go home and let the electorate decide things for themselves before severe damage is done to Thailand's economy and foreign investors flee.

Until the coup, one of my biggest concerns about Thailand was that the wealthy, upper-middle class are perhaps the least supportive of democracy. This is due, in part, to Thailand's class-based society in which the elite are dominated by ethnic Chinese who hold some of the country's highest political, economic, military and cultural positions.

Yet, for those with a hearty appetite for volatility, Thailand is still a solid long-term, developing-market play, though at a different point in its advancement compared with other Asian countries. Even before the coup, Thailand had challenges. How it resolves them will dictate its future course and its suitability for increased investment.

Thailand has built a diverse industrial base with buyers worldwide. Known as an Asian "Tiger Cub," the Thai economy is export-oriented, with exports making up 65% of its GDP. The export markets are nicely balanced. In 2012, Thailand's trading partners were China (12%), Japan (10%), the U.S. (10%) and the EU (9.5%), plus Malaysia, Australia and Singapore.

Although some 88% of exports go to non-China destinations, China is rapidly assuming more influence in what was once America's oldest South Asian ally.

As of this writing, the ThaiDEX SET50 ETF (TDEX: TB), which mirrors the benchmark index of the Stock Exchange of Thailand, is up more than 20% year to date.

Foreign investor access to the Thai market includes the ADRs of major domestic companies, such as Thai Airways International PLC (THAI: TB) and Thaicom PCL (THCOM: TB); and several funds, including the iShares MSCI Thailand Investable Market Index Fund (THD), the Thai Fund (TTF), The Thai Capital Fund (TF) and, hopefully in the near future, the DMS Thailand Select 33 Index Fund, which mirrors the NASDAQ Thailand Select 33 Total Return Index.

Peter Kohli
pkohli@dmsfunds.com | 484.671.3011