By Brandon Clay
Thanks to an onslaught of new ETFs, investors have more opportunity than ever to invest in emerging markets. A new way to jump onboard is to buy sectors of emerging markets, much like the previously highlighted Latin American Small Cap ETF. Another way is to go abroad is with a single-country ETF. Either way, investing in emerging markets is not without hazard.
One of the trickiest issues to navigate in emerging markets is political uprisings. Many emerging market nations are in transition to a less corrupt, more democratic form of government. There are sure to be hiccups along the way. Emerging markets are fertile ground for political protests and uprisings, but profit opportunities can also come out of those perilous events. That may be the scenario that we’re seeing with Thailand right now.
The iShares MSCI Thailand Investable Market Index (THD) had been one of the top emerging markets ETFs in 2010. Then political protests in Thailand made headlines last week. Protesters known as the “Red Shirts” want Prime Minister Abhisit Vejjajiva to dissolve Parliament and call new elections. The Red Shirts also allege that Vejjajiva came to power by dubious means. The protests were met with strong force from the authorities. Nonetheless, Thai stocks took a tumble. If you missed part of THD’s big move higher, this dip could be the right time to finally get into the ETF.
The protests have dragged down THD by about 6% in the past week, but the ETF is still up nearly 10% year-to-date. It has doubled in the past year. There is good reason for those stout numbers. Thailand’s close proximity to China is a huge advantage. As China’s economy grows, there’s a trickle-down effect to small Asian economies. Thailand is one of the biggest winners.
Tourism also helps the small Southeast Asian nation, accounting for roughly 20% of Thailand’s GDP. If protests continue, tourism will obviously be adversely impacted. That has some analysts adjusting their GDP estimates for Thailand this year. Nomura Securities said Thailand’s GDP growth could touch 3.3% this year if the protests continue for several more weeks. Nomura’s original estimate was for growth of 3.8%. That said, it should be noted that Thailand has a history of dealing with political crises. The country has never had issues servicing its debt. While conservative investors may want to pass on Thailand, there is probably a good risk/reward scenario here for those willing to weather the unrest.
Finally, the Thai government moved swiftly to deal with the recession of 2009. The country is trying to reduce its dependence on tourism as a GDP driver, aiming to increase exports to 10%-15% and perhaps as high as 18% this year. There are several trading strategies that could be helpful in acquiring THD. One would be to wait for the protests to cease and for a new government to be in place and then start purchasing shares. Another way of getting into THD would be to start building a position now and dollar-cost average into your position. To buy into a dip on a burgeoning emerging market, go with THD.
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Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.