A Taste of Thai
04/21/2006 12:00 am EST
For those seeking to diversify their investment portfolios with global holdings, I highly recommend attending a workshop by Carlton Delfeld. Here, he looks at a contrarian play on one of his favorite long-term global markets - Thailand.
"Thailand Prime Minister Thaksin Shinawatra's recent resignation is a major opportunity for investors willing to step into a temporary political vacuum.Thaksin's surprise announcement came after a meeting with the symbolically powerful king of Thailand, Bhumibol Aduljadej, at his seaside palace. The king has presided over Thailand since 1946 and is revered by all.
"As in the past, when the political temperature reaches a boiling point, a curt nod from the king is enough to send even the most imperious prime minister packing. This safety valve is a key part of Thailand's constitutional monarchy and helps it to maintain stability in times of crisis.
"Investors should not stay on the sidelines until a new premier is soon selected; they should act now to take advantage of an undervalued Thai market. With a land area more than twice the size of Wyoming, Thailand is a youthful, solid middle-income country with a consumer-oriented middle class. Its economy is well diversified and rich in natural resources, and has a vibrant manufacturing sector and strong exports.
"While many Asian markets such as Hong Kong, Singapore and Japan are hitting multiyear record highs, the Thai market has lagged largely because of the political turmoil. Gross domestic product growth for 2006 should match or better last year's 4.5%, and fuel subsidies have been cut, relieving pressure on the national budget. International capital flows to Thailand remained stable during the crisis but will likely ramp up quickly once calm is restored. History shows that the Thai market is both resilient and explosive. Thailand's benchmark index rose 115% in 2003.
"I suggest investors use the closed-end Thai Capital Fund (TF NYSE) managed by Daiwa SB Investments. It is trading at a 4% premium to net asset value, with a share price of $10.15, just shy of its 52-week high in January of $10.88. Another option is the Thai Fund (TTF NYSE), although we note that this closed-end fund was recently trading at a 16% premium to its net asset value. It's a little rich. The king has acted, and so should you."