In previous eras of strength for emerging markets equities, the iShares MSCI Thailand Capped ETF (NYSE: THD) was frequently a leader. That isn't the case this year as the lone Thailand exchange-traded fund listed in the U.S. is up just 6.4 percent, a fraction of the almost 18 percent returned by the MSCI Emerging Markets Index.
The good news is that the Thai economy is growing at a brisk pace, which could encourage investors to take another look at THD. Among single-country emerging markets ETFs, THD is overlooked this year as global investors focus on larger Asian economies such as China, South Korea and Taiwan.
“Official data showed that Thailand's economy started on a strong note this year, expanding at the fastest pace in four years during the first three months of 2017, which confirmed earlier PMI survey results of faster growth,” said Markit in a recent note. “However, the very latest survey data pointed to a loss of growth momentum at the start of the second quarter.”
Focusing In On THD
The $417.3 million THD tracks the MSCI Thailand IMI 25/50, which is a collection of some the largest Bangkok-listed issues. THD holds 124 stocks, 21 percent of which hail from the financial services sector. Solid economic growth in Thailand is potentially a catalyst for THD because the ETF allocates over 17 percent of its weight to consumer sectors.
“The National Economic and Social Development Board announced that gross domestic product (GDP) rose 1.3 percent from the prior three months during the first quarter,” said Markit. “That took the annual GDP rate to 3.3 percent, which is the fastest since the second quarter of 2013. Stronger household consumption and export growth more than offset weaker expansions of private investment and public spending.”
However, there are concerns about the veracity of Thai economic growth. That could weigh on the cyclical elements of THD. The ETF devotes over 37 percent of its combined lineup to cyclical energy, industrial and materials stocks.
“Moreover, there were further signs of increasing pessimism about future prospects,” said Markit. “Business confidence among PMI respondents for the year ahead sank to the lowest in the survey history, which could further weigh on private investment. Lower employment levels reported in the last three months added to the sense that firms have become cautious about the business outlook.”
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