Planting Seeds in Thailand's Fertile Soil 

07/14/2009 9:22 am EST

Focus: GLOBAL

David Fuller

Global Strategist and Producer, Fullermoney

Political unrest in the 'Land of Smiles' shouldn't scare off patient value investors, writes David Fuller of Fullermoney.

Many investors, including me, are fed up with Thailand's many coups, riots and sit-ins, not to mention the insurgency. I first invested in Thailand, via my personal long-term pensions and ISAs accounts, in May 2003. It had the best base formation in the world at the time, better even than India's. I took some profits in January 2004 and bought back on the dips, but foolishly did not sell when the pattern seriously began to unravel after a third failure near 900 in May 2008.

Thailand is still cheap despite a sharp rebound, particularly relative to most other stock market valuations. Unquestionably, the valuation reflects political risk.

That is a legitimate concern, but I would be more worried if the main risk with Thailand appeared to be economic. Global recession aside, Thailand is in the right geographic region and has the right products to benefit from economic recovery. It will never be a manufacturing power, although it is a popular location for automobile assembly.

Thailand's main advantage is its fertile land, enabling it to be a major supplier of agricultural products, not least rice, for China and Asia's other regional powers. With its exotic history and reputation as the Land of Smiles, Thailand is also a popular tourist destination. [Ousted Prime Minister] Thaksin Shinawatra, for all his apparent faults, was moving tourism up market-for instance, less sleaze and more medical tourism, and the current government will surely follow this lead.

I have a direct investment in Thailand via the UK-listed, sterling denominated Aberdeen New Thai Investment Trust (LSE: ANW) and diluted via the Aberdeen New Dawn Investment Trust (LSE: ABD), which is also sterling denominated. Being ITs (closed-end funds) prices fluctuate relative to the net asset value (NAV) and are currently at discounts of over 15% (ANW) and 10% (ABD). [As of Monday's close, ANW's NAV discount was down to 13%, while ABD was priced 8.8% below NAV-Editor.] Discounts are normal in the UK, although they can move to premiums when animal spirits are high.

I am holding both ANW and ABD for a further recovery over the medium to longer term. However I would consider lightening ANW on strength, particularly if it eliminates the discount to NAV. I might also increase my holding in the regionally diversified ABD on a further setback.

(US investors can invest in Thailand through a variety of regional mutual funds and exchange traded funds, including the iShares MSCI Thailand Investable Market Index (NYSEArca: THD).

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