Virtus Global Multi-Sector Income Fund

iShares MSCI Thailand ETF

THD tracks a market-cap-weighted index of the Thai equity market.

Not much has actually changed for the long-term Thailand investment case. Recent drivers have been short-term oriented and are likely to fizzle out eventually. I won't be chasing the recent Thai rally.

THD: Dissecting The Big Thailand Rally

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Despite volatility, the S&P 500 emerged stronger in the third quarter, touching a series of new record highs. It was the index's best quarter since Q4 2021.

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US equities have outperformed the rest of the world for a long time now. While the US is up 58% on a total return basis during the current bull market, the rest of the world is up 13.5 percentage points less at +44.5%. Looking at the international dividend ETF over a longer time frame, over the last five years, it's up 20.6% in price and more than double that on a total return basis.

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With recession concerns easing and Fed rate cut talks rising, Wall Street closed August with renewed optimism.

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Thailand's economy should fully bounce back by late 2024 or early 2025, but growth still lags behind regional peers. The World Bank projects Thailand's economy to grow by 2.4% in 2024 and 2.8% in 2025, slower than other regional markets. Thailand's tourism industry is showing signs of recovery, with the potential for tourist arrivals to reach pre-pandemic levels in 2025.

THD: Macro Improvements Point To Full Recovery In 2025

Thailand stock market underperforms due to weak tourism, exports, and political instability, leading to a significant decline. The decline has seen some cheapening up of valuations, particularly compared to some of its Southeast Asian neighbors. Government measures coming up soon include cash handouts, relaxed visa rules, and specific measures to boost stocks.

THD: Thailand Stocks Continue To Weaken, Look For A Buying Opportunity

Thailand's political situation is pretty unstable, and markets are reacting to a corollary of that, which is a scramble to get political rate policy done at the central bank. The baht is down, and market reforms after some accounting incidents have led to a difficult 2023 and also the beginning of 2024. The market is also quite richly valued, led by the businesses that might have been interesting in a weak baht environment.

THD: Baht Suffers From Governance Issues

Thailand has not been a happy hunting ground for investors in recent years. The macro/micro setup offers little hope of an equity turnaround anytime soon. Pending a step change in the fundamental outlook, I won't be buying this dip.

THD: Thai Equities Are Still Too Pricey

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While the China macro story of ongoing transition is a headwind to the rest of Asia, there is more to the region's economic health than this.

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The total nominal GDP of the ten ASEAN nations measured in US dollar terms amounted to USD 3.6 trillion in 2022, more than doubling compared with total GDP of USD 1.6 trillion in 2009. Singapore's GDP growth rate improved to a pace of 2.8% y/y in the fourth quarter of 2023 according to the advance estimate of GDP from the Ministry of Trade and Industry (MTI).

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Thai markets have performed poorly, but the macroeconomic and monetary situation is stable and fiscal stimulus is expected. However, the somewhat higher PE ratio remains, and there are high expense ratios associated with THD due to the markets it invests in. While the Thai economy doesn't raise exceptional concern, valuations of THD are not compelling.

THD: Not Terribly Compelling

With moderating inflation levels in most Asian countries and great growth potential in the medium to long term, investing in Emerging Asian countries can prove beneficial.

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Thailand's political overhang has finally cleared. Instead, markets will now have to contend with a fiscal overhang. Thai valuations are still pricey and remain vulnerable to future disappointments.

THD: Beware Of Thailand's 'Helicopter Money' Plans

iShares MSCI Thailand ETF offers coverage to less than 150 Thai stocks. The Thai economy is currently facing challenges, with lower-than-expected GDP growth, weak industrial conditions and an unappealing export backdrop. We like the risk-reward on the charts, although valuations are not too compelling.

THD: Dicey Macros, But The Risk-Reward Is In A Better Place

Emerging Asia countries can be great investment opportunities in the medium to long term. With rating agencies revising their 2024 growth projections for these countries upwards, look into how they stand to gain and what funds investors can invest in to gain exposure.

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The near-term macro backdrop isn't great for Thai equities. Nor is the ongoing political wrangling post-elections. The iShares MSCI Thailand ETF is still pricing in a blue-sky outcome and looks vulnerable.

THD: Thailand Is Pricey Despite The Political Overhang

Shrinking advertising revenue is forcing Thai broadcasters to pursue growth via global content distribution, driving premium content production, including with partners outside Thailand. Lower advertising revenue available for production budgets is impacting the quantity and quality of content produced by broadcasters such as BEC World and One Enterprise, which have operated under tight cost controls in recent years.

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Thailand's economy is poised for recovery, with tame inflation and potential tourism resurgence in 2023. Equities are trading at reasonable valuations, but other emerging markets may offer more compelling opportunities. iShares MSCI Thailand ETF has declined 27% in the past five years and has not yet returned to pre-COVID highs.

THD: Outlook Improves In 2023

Emerging Market stocks look cheap in general, although Thai stocks are not particularly cheap versus their historical valuation range. Investors rationally are acknowledging the strong tourism rebound for Thailand. The country in recent years also has been relatively stable politically and doing ok keeping inflation in check.

THD: Tourism Rebounding However Thai Equities Not Compelling As Exports Slow

The iShares MSCI Thailand Capped ETF looks poised for a better 2023 as the Chinese reopening gets underway. The ETF's diversification allows investors to benefit from the first and second-order effects of a tourism rebound, as well as long-term foreign investment tailwinds.

THD: China-Led Tourism Rebound To Reignite The Thai Growth Story

Against the challenging environment and increasingly dimming economy globally in 2022, Southeast Asian countries represent a rare part of the world that have delivered impressive resilience. The heavier exposure to value-driven sectors also leads the FTSE ASEAN Index to deliver a relatively higher yield than the broader global markets.

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THD invests in Thai equities. The fund has actually out-performed the United States' S&P 500 index in recent times.

THD: Thai Equities Are Probably Trading At Close To Fair Value With An Unexciting IRR Profile

Key drivers for rising FDI inflows into Southeast Asia include diversification of manufacturing supply chains by multinationals, as well as new investments to tap rapidly growing consumer markets in ASEAN. In the near-term, FDI inflows to the ASEAN region are also expected to be supported by the resilience of Southeast Asia to the slowdown in the US and EU during 2022.

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Non-China Asian exports are still growing, but the pace of increase has slowed and will slow still further as key export destinations struggle with inflation, energy security, and rising recession risks. In year-on-year terms, the rate of overall export growth is now skirting single-digits again.

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The ASEAN region has shown a strong rebound in manufacturing output during October. As a result of the severe negative impact of the COVID-19 pandemic and widespread lockdowns and travel bans, many ASEAN economies were in deep recession during 2020.

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News for iShares MSCI Thailand ETF ETF (THD)