Baht Rising: Thailand ETF in Focus

Inflows into Thailand amounted to $3.42 billion this year, driving the baht to its highest level since mid-2015. Current account surplus was $5.73 billion in February 2017, while foreign exchange reserves rose 5.2% to $181 billion.

The performance of the Thai stock market has been mixed so far this week, with both positive and negative finishes. Thailand denied any practice of currency manipulation to curb some of the gains of the baht, which makes its exports less attractive. Any such thing could place it on U.S. Treasury’s monitoring list, which is due in mid April.

This report, which includes a three-point checklist, determines if a trade partner is trying to manipulate its currency. A bilateral trade surplus of more than $20 billion with the U.S., current account surplus of more than 3% of GDP, and purchase of foreign assets of more than 2% of output indicate that the country has resorted to currency manipulation as per Bloomberg. Thailand’s trade surplus with the U.S. was $18.9 billion in 2016, marginally short of the stipulated figure.

In the current scenario, let’s have a look at the Thailand ETF, THD:

iShares MSCI Thailand Capped ETF THD

This fund offers exposure to companies based in the nation and is an appropriate bet for investors bullish on Thailand.

It has AUM of $440.4 million and charges a fee of 63 basis points a year. The top three sector allocations of this fund are Financials, Energy, and Consumer Staples with 26.69%, 17.23%, and 10.56% allocation respectively. It bears significant concentration risk with about 48.8% allocated to the top 10 holdings. The fund received net inflows of $49.25 million year-to-date and returned 7.8% in the same time frame (as of April 4, 2017). It returned 21.08% in the past one year and has a Zacks ETF Rank #3 (Hold) with a Medium Risk outlook.

We will now compare the performance of THD to a broader South East Asia ETF, ASEA.

Global X Southeast Asia ETF ASEA

This fund provides broad exposure to the five members of the Association of Southeast Asian Nations, Singapore, Indonesia, Malaysia, Thailand, and the Philippines. It is appropriate for investors looking for a diversified exposure to South East Asia (read: Malaysia Inflation at Record High: ETF in Focus).

ASEA is a relatively less popular fund with AUM of $11.41 million and charges a fee of 65 basis points a year. Financials, Telecom, and Industrials are the top three sectors with 44.58%, 16.10%, and 7.76% allocation, respectively. It bears concentration risk as almost 50% is allocated to the top 10 holdings and over 22% is allocated to Thailand. The fund gained 8.20% in the past one year and 11.42% in the year-to-date time frame (as of April 4, 2017). ASEA currently has a Zacks Rank #3 with a Medium risk outlook.

 

Source: Yahoo Finance

To Conclude

Though the Thailand ETF significantly outperformed ASEA in the past one year, ASEA has been the better performer so far this year. With almost 30% exposure to Singapore, ASEA’s relative underperformance in the past one year was partially due to growth concerns in Singapore, which have since then abated. Given the doubts over policy decisions to be adopted by Thailand, its best to remain on the sidelines for now (read: Investments in Singapore Property Assets Rise: ETF in Focus).

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