Investing in Emerging Markets: Is it Time to Invest In Thailand?

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There is a good reason investors have been clamoring to invest in emerging markets.

With the West spinning its wheels, the truth is there's a good deal of money to be made in these markets in 2012.

One emerging market I like is Thailand.

That's true even though Thailand has only been in the news recently for its terrible floods, which have disrupted supply chains worldwide.

That's understandable; the floods drove down Thai gross domestic product by no less than 9% in the fourth quarter of 2011.

Nevertheless, the level of global disruption caused by these floods indicates just how crucial Thailand has become to the world economy.

And since the place is now well run, and looks to be set to have a nice catch-up year in 2012, with further decent growth in 2013, as investors we'd be wise look carefully there.

Thailand: A Real Emerging Market

Here's why things have changed for the better in Thailand.

From 2001 to 2011, Thailand was engaged in a massive power struggle between the election-winning Thaksin Shinawatra, who drew support mostly from rural areas, and the Bangkok elite.

Prior to that Thailand had developed very rapidly until the 1997 Asian crisis, but the great majority of its development had been in Bangkok, with innumerable wasteful real estate prestige projects.

Thus Thaksin's reorientation of the economy towards rural areas was a good idea.

But the Bangkok elite did not take kindly to it, and from 2005 engaged in street protests, prosecutions and undemocratic governments, slowing Thailand's economic development as foreign investors became deterred.

That changed in July 2011. Thaksin's sister Yingluck Shinawatra won a big enough victory in the general election that she could not be stopped.

Accordingly, Thaksin's policies of free market economic development with an emphasis on rural areas rather than Bangkok have again been implemented.

As a result, Thailand's growth prospects look good, with The Economist's team of forecasters predicting 6% growth in 2012, after a flood-affected 0.1% in 2011 and GDP of $346 billion. In 2013 growth is forecast to be 4.6%.

Thai inflation is also low at around 3% and the government deficit is moderate at around 3.4% of GDP. Debt is also well under control even with a central bank that has been loosening somewhat to bring rapid recovery from the floods.

With interest rates still at a reasonable 2.8%, there seem few economic obstacles to Thailand's growth.

Political obstacles are a different matter; though the government's opinion poll ratings remain high; the opposition remains embittered and is heavily concentrated in the capital.

Thailand's economy is somewhat short on energy and minerals but well balanced between manufacturing and services, with a strong agricultural sector. Thailand is a major exporter of rice and fishery products.

In the manufacturing sector, its labor costs are now relatively low compared to other Southeast Asian centers and competitive with coastal China, so it benefits greatly from participation in China-centered supply chains.

Its tourism sector is spectacularly successful. With 19 million visitors in 2011, up 20% from the previous year, Thailand has doubled the volume of ten years earlier. Bangkok is now third behind London and New York among top city destinations.

Thailand has a substantial oil industry but is nevertheless a substantial importer, so the country would benefit from an easing in global commodity prices.

How to Invest in Thailand

Since no Thai shares have full ADR listings and even the Pink Sheets companies are highly illiquid in New York, the easiest way to participate in Thailand is through the iShares MSCI Thailand Index Fund (NYSE:THD).

This fund has substantial net assets of $647 million, an expense ratio of 0.6%, a yield of 2.5% and a P/E ratio of 12.

Given Thailand's economic prospects, that valuation is relatively attractive, since like most emerging markets in South-East Asia, Bangkok has been much less affected than Western markets by the surge of global liquidity.

If you want to invest in single Thai company, you might want to consider the Siam Commercial Bank (Pink Sheets: SMCBF).

Over 100 years old, SCB is Thailand's leading universal bank, offering a full range of financial services products. It's currently trading on 11.6 times trailing earnings, with a dividend yield of 2.0%.

For investors looking for emerging market growth, Thailand is not a bad place to start.

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  1. Georghe | March 22, 2012

    Too true, but Thailand will inevitably lean toward China in matters of trade. Thailand, like most other countries in South East Asia, ise controlled by the Chinese Diapora, just as ours is controlled by the Jewish Diaspora. Your best friend will eventually be the one you trade with, as long as they do not interfere with your domestic affairs, as China does. In this third millennium, controlling nations through peace, is far more effective than undertaking imperial conquest to get resources and cheap labour. Drastic reforms in our protocol of democratic governance are needed to prevent the demise of Western civiization. Education is probably, the best investment we can make along with encouraging scientific research and decreasing the maze of government regulations, and the influence of lobbyists in the corridors of power.

  2. Georghe | March 22, 2012

    An opinion which is increasingly similar to the calls of genuine democracy worldwide.

  3. David | December 8, 2012

    Although you speak sense about investment you have a very Incorrect and disturbingly wrong view of the politics as do most western people who have not or do not live there. Far from Thaksin being the saviour,he was a dictator who abused his position teribbly. Votes wre bought from all accounts and violent fans of his burnt parts of the city down armed with weapons…it was very scarey. His human rights record was appalling with thousands shot without trial. Please look into the backgrounds of the politicians and you will see what unsavoury characters they are…..I wish it was as simple as your roses picture……..

  4. Investor | January 2, 2013

    Hello,

    I am moving to Thailand this year, mostly because it is better life and Thailand offer great opportunities.
    I have invested in rubber plantations, palm oil plantations, now my goal is to invest in real estate projects..beauty industry etc… we will see ;)

  5. Carlos Munoz | May 9, 2013

    I think David is right. The picture painted by the author is a little too simple. Thaksin and his sister Yingluck have implemented populist policies which tend to sound good on paper but can often turn into monumental disasters. Take the rice buying scheme Yingluck implemented. Despite wide criticism from both inside and outside of Thailand the government decided to purchase rice at rates well above the going market rates. Of course, that got Yingluck elected as the country is mostly rural and this sounds like a great deal for the farmers. However, now the government is sitting on so much rice they have to sell it before it goes bad and the EU, US, and many other countries are fretting about having that much rice dumped on the market at distressed prices.

    It was a horrible plan from the beginning and not a single respected economist backed it. But Yingluck (and by extension, the real boss, her brother Thaksin) promoted the heck out of it in order to get elected. Now that it's falling apart they're trying to hide the losses by claiming that they're selling the rice directly to governments (which those governments have denied).

    The ultimate fallout will be in the billions of dollars. But that is the Thaksin MO. He promotes his own interests using public funds. He basically bought the election by promising to have the government buy rice at prices 20% – 30% above market rates. Obviously the masses are going to go for that. And because it is mostly the middle and upper class in Bangkok who will eventually pay for it, they tend to get pretty angry at these populist policies.

    I'm not saying the yellow-shirt (royalists) are right in instigating coups against Thaksin and such but the author of this article clearly is simplifying a situation that is very complex.

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