Contrary Call on Thailand

07/15/2014 10:00 am EST


Benjamin Shepherd

Analyst, Breakthrough Tech Profits, Global Income Edge and Personal Finance

A coup in Thailand saw the nation's prime minister deposed and the military seize power; interestingly though, neither event has had a particular impact on the local markets, observes Benjamin Shepherd, editor of Passport to Profits.

Politically speaking, Thailand had been in gridlock for more than a year as the prime minister's legitimacy was under question and the markets view the military takeover as providing a degree of certainty for the country's future. As a result, foreign investment hasn't slowed and life in Thailand is carrying on largely as usual.

When it comes to investing in Thailand, the broad-based iShares MSCI Thailand Index Fund (THD) is the best option available to US investors.

The ETF holds the local shares of 90 Thai companies, with financials dominating at 39.5% of the portfolio. While Thai banks have experienced an earnings slowdown in recent quarters, they're working to reverse that trend by gradually increasing fees and growing their insurance businesses.

They've also been gradually growing their loan portfolios over the past year, but they've only been taking on the most creditworthy clients because their emphasis has been on making high-quality loans.

Lending will likely pick up over the rest of the year, thanks to the increased pace of infrastructure construction.

While the government is footing the bill for much of that development, about a third of the projects slated to start over the next two years are being privately contracted and constructed. Many of those projects involve highway and canal work.

That will drive demand for loans by many of Thailand's most creditworthy borrowers. Many of those loans will include government guarantees, a win-win for the banks, and engineering and construction firms involved.

The top banks in the fund's portfolio include Siam Commercial Bank, the country's third-largest commercial bank in terms of assets, deposits, and loans. The fund is also heavily in energy and materials companies at just over a quarter of assets, followed by telecoms and consumer firms.

The fund is relatively inexpensive with a 0.59% annual expense ratio, making it cheaper than any closed-ended funds that focus on the country. iShares MSCI Thailand Index Fund is a buy under $85.

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