Is the iShares Thailand ETF Worth the Risk?

| About: iShares MSCI (THD)

Currently, Thailand is in the throes of political turmoil so serious, it is threatening the economic well-being of the country. But as the second-argest economy in Southeast Asia, it’s hard to ignore their potential. You can see these competing forces in play in Thailand’s ETF: up 92% on the year, but down 3% in April.

The turmoil plaguing Thailand has been the rise of the red shirt movement, which has been accused of trying to overthrow Thailand’s constitutional monarchy, reports Seth Mydans for The New York Times. In April, red shirt protests led to 25 deaths and more than 800 injuries.

According to Mydans, the red shirt movement was built on the political base Thaksin Shinawatra, a former prime minister and telecom billionaire, created during his tenure.

Because of the risk of political upheaval, Fitch downgraded Thailand’s long-term local currency rating from stable to negative, report Shamim Adam and Dan Ten Kate of BusinessWeek.

The downgrade “reflects an escalation in political uncertainty, coupled with a slow economic recovery and a deteriorating policy environment, all of which are expected to impact adversely on sovereign creditworthiness over time,” said Vincent Ho, associate director of Fitch’s Asia sovereign ratings team.

Countering, Usara Wilaipich, a Bangkok-based economist said, “Any move by ratings agencies should reflect their concerns about political risk rather than the fundamentals of the Thai economy.” Thailand opted to do just that, and kept rates where they are while the unrest plays out.

Thailand’s four biggest banks posted robust earnings in the first quarter, report Leigh Murray and Piyarat Setthasiriphaiboon of The Wall Street Journal. Bangkok Bank PCL’s first quarter net profit rose 25%, Krung Thai Bank PCL’s earnings rose 16%, Kasikombank PCL’s earnings grew 15%, and Siam Commercial Bank PCL’s net profit grew 15%.

If the Thailand ETF is one you’d like to own, note that a) it’s above its long-term trend line, although it has dropped sharply since the crisis began and b) have an exit strategy in place – it’s considered a sell signal if it drops 8% off the recent high or below the 200-day moving average, whichever comes first.

  • iShares MSCI Thailand Investable Market Index ETF (NYSEARCA:THD)

Sumin Kim contributed to this article.

Disclosure: None