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Thailand ETF Gets a Lift From Surprise Rate Cut


Shares of the iShares MSCI Thailand Capped ETF (THD) are up 1.2% Wednesday, making the lone Thailand exchange traded funds one of the day’s best-performing emerging markets funds after the Bank of Thailand surprisingly cut interest rates.

During Wednesday’s Asian session, the Bank of Thailand pared its benchmark borrowing rate to 1.75%, a cut that few economists saw coming. Of the 22 economists surveyed prior to the Bank of Thailand meet, just six predicted a rate cut, according to Bloomberg.

The Bank of Thailand had previously held rates steady for seven consecutive meetings, but has now joined more than 20 global central banks in lowering borrowing costs this year. THD is up 1.6% this year, easily outpacing the 2% drop for the MSCI Emerging Markets Index.

Considering political headwinds and increased volatility across parts of the emerging markets complex, THD has been a solid performer this year. In January,the Thai parliament voted to impeach former Prime Minister Yingluck Shinawatra and moved forward with criminal charges against Shinawatra for her role in a rice price-fixing scandal. She could face up to 10 years in jail if found guilty on the criminal charges. She has also been banned from leaving the country. THD has largely rebuffed any signs of political instability in the wake of Yingluck’s impeachment. [Thailand ETFs Rises Despite Small Outflows]

Emerging markets central banks have been among the most dedicated cutters of interest rates this year. Recently, China and India have lowered rates. Russia did so in January and some traders are betting another are cut from the controversial country is imminent. Indonesia and Turkey have also lowered rates.

Punished by the strong U.S. dollar, some developing markets are rushing to pare interest rates in advance of the Federal Reserve boosting U.S. rates. Weighing on the emerging markets space, the U.S. dollar has been slowly appreciating against a basket of foreign currencies on the prospect of a higher U.S. interest rate, reports Patti Domm for CNBC. The WisdomTree Emerging Currency Strategy Fund (CEW) is off 3.7% this year. The Thai baht is the second-largest holding in CEW at nearly 7% of the ETF’s weight.

Thai stocks could also be supported by the country’s Social Security Office’s bid to up its equity positions while trimming its holdings of sovereign debt. “The fund has overweight holdings on commerce, telecommunication and health-care companies as they’re less affected by energy prices and slower global growth,” according to Bloomberg.

Telecommunications, health care and consumer sectors combine for about a quarter of THD’s weight. [Solid Start to new Year for the Thailand ETF]

iShares MSCI Thailand Capped ETF