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Is the Thailand ETF's Run Over?

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Though the third quarter started off pretty well, the period ended amidst a lot of volatility. A surprise 'no taper' announcement from the Fed and now the government shutdown have lately caused worries for investors worldwide.
The partial government shutdown has led to uncertainty not only for the U.S. economy but also has ripple effects in the global markets. The shockwaves traveled across emerging markets (EM) as well.
Some emerging market titans in the ETF world which were striving to recover ever since the FOMC meeting on September 18th has seen some brutal trading, though there has been a bit of a rebound in many names as well. (See: Time to Panic About Emerging Markets?).
While many emerging economies suffered badly, Thailand seems to have been one of the worst hit.
Is Thailand in a recession?
Thailand was in the spotlight for the first half this year. However, a series of downturns have led some observers to label the country to be in a “Technical Recession” now.
While Thailand’s economy grew by 2.8% in Q2 on a year-on-year basis (YoY), growth has fallen by 0.3% in the second quarter from the previous quarter. This followed a 1.7% quarter-on-quarter (QoQ) fall noted during January-March this year.

In fact, many businesses in the country are forced to cut their spending due to a slowdown in domestic consumption. Moreover, due to factors like rising costs and sluggish growth, the private sector has been badly affected. Due to a decline in profits, companies have curtailed spending on Research & Development (R&D).
Goldman Downgrades Thailand
Due to the country’s grim economic outlook and concerns over potentially high levels of non-performing loans, Goldman Sachs has downgraded Thailand’s rating to market-weight from overweight. (Read: Is the Thailand ETF in Trouble?).
Given this gloomy backdrop, the country’s main benchmark has seen pretty rough trading over the past few weeks. Furthermore, the nation’s currency, the baht, has also struggled, losing a bit in recent trading.
About THD
Launched in March 2008, iShares MSCI Thailand Capped Investable Market Fund (THD) is the lone Thailand specific ETF and tracks the MSCI Thailand IMI 25/50 Index. The fund will at all times invest at least 90% of its assets in the securities of the index or in depositary receipts representing securities in its index. So far, this ETF has amassed about $635.8 million in its asset base.
From a holdings perspective, THD holds about 110 securities in its basket. The product is concentrated more in its top 10 holdings which take almost 50% of the total.
PTT PCL, Advanced Info Service and Siam Commercial Bank take the top 3 spots from an individual holding perspective. The trio makes about 21% share in the basket.
The product mainly plays in large cap securities, which accounts for 80% of the portfolio, while the rest is taken up by mid caps. In terms of style, the ETF gives a nice flavor by including both growth as well as value stocks. The product charges investors 62bps in fees. (Find all the Asia Pacific Emerging ETFs here).
Financial leads the sector with 36%, while Energy, Materials and Telecommunications take a share of 18%, 9.55% and 9.4%, respectively.
However, the performance has still been in negative territory for THD. The year-to-date returns of the fund stand at a negative 4.1%. However, yield looks impressive, as the fund gives a decent dividend yield of 2.5% yearly. The product has an average daily trading volume of 293,000 shares a day.
Bottom Line
The short-term outlook seems cloudy at present in the wake of U.S. economic uncertainty and the slowdowns in Brazil, China, and India, have cautioned investors against investing in emerging economies. However, the long-term outlook for Thailand seems bright as THD currently has a Zacks ETF Rank of 2 or ‘Buy’ rating.
Moreover, the Thailand economy is projected to grow at around 6.5% in 2014 and foreign investments will have a definite role in the country’s growth. Given the strong comeback forecast for next year, THD may be seen to fetch positive results, and could be a decent pick if you are able to stomach volatility (Read: Malaysia ETF: Trouble on the Horizon?).
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