Market Overview

GDP Report Lifts Thai ETF to All-Time High

Shares of the iShares MSCI Thailand Capped Investable Market Index Fund (NYSE: THD) are up 1.2 percent Tuesday, trading just pennies away from $90 level for the first time in the ETF's history following a strong fourth-quarter GDP report out of the Southeast Asian nation.

On Monday, Thailand said its fourth-quarter GDP grew 3.6 percent, an increase of almost 19 percent from the year-earlier period, helping the country post 2012 growth of 6.6 percent. The Thai central bank expected 2012 growth of 5.9 percent. On the heels of a 33.5 percent surge in 2012 that made THD one of the year's top-performing emerging markets ETFs, the fund has kept the good times going in 2013 with a 7.7 percent year-to-date gain.

THD's continued bullishness in 2013 undoubtedly has some naysayers licking their wounds. Assertions that Thai equities are expensive, overbought and "known for outperforming at the end of rallies, not being the leaders of the pack" have proven wrong to say the least.

The $90 area, perhaps psychologically important to some traders, could prove to be no more than a resting place for THD. A burgeoning domestic growth story in the "land of smiles" could continue propelling THD higher this year.

"Industry data showed loan growth supported banking stocks in particular. Interestingly, over the past two years, some European banks—dealing with a debt crisis at home—withdrew from some emerging markets; this seems to have benefited local lenders in Thailand," said Mark Mobius, executive chairman of Templeton Emerging Markets Group, in a recent blog post.

Mobius also spoke favorably of the Thai construction sector, noting infrastructure largess could benefit that sector.

"The Thai construction industry was another well-performing sector story, as suggestions that a ramp up in Thai infrastructure projects could further increase demand for building materials," noted Mobius.

Strength in financial services names is a boon for THD. Like so many emerging markets ETFs, the lone Thailand fund is heavily allocated to the sector with an almost 40 percent weight to it. However, that significant weight to bank stocks proved to be good news last year when mergers and acquisitions activity, expected to be robust again this year, rose to at least $27 billion, according to the Financial Times.

That is not to say THD does not offer exposure to the expected surge in domestic infrastructure spending. Combined, materials, telecom and industrial names represent about 23 percent of the ETF's weight.

Earlier this month, it was reported that Thailand could spend up to $76.3 billion on infrastructure structures through 2020. Four high-speed rail projects, valued at over $30 billion and aimed at making commerce there more efficient, could be among the first projects to be started.

To its credit, Thailand does not want the infrastructure spending to threaten its tidy 41.7 percent debt-to-GDP ratio or its investment-grade credit rating (BBB+ according to Standard & Poor's) and is courting foreign investors from China, Japan and others to invest in its infrastructure endeavors.

Other stimulus efforts could help boost the allure of the Thai consumer story as Mobius notes.

"The Thai government has provided various stimulus efforts, including increases in the minimum wage, which should help boost consumer income levels and could fuel greater domestic-led growth," he wrote.

Again, that is good news for THD as the ETF allocates over 13 percent of its weight to consumer-related shares, including 9.9 percent allocation to staples names.

For more on Thailand, click here.

Posted-In: Long Ideas News Short Ideas Emerging Market ETFs Global Econ #s Economics Intraday Update Best of Benzinga

 

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