Thailand is the world's 53rd-largest country by area, 20th-largest by population, and the 28th-largest in the world by economic size, as of 2021. With a newly industrialized emerging market economy, international investors know the country for its robust growth rates that are being driven by a rapidly expanding population and growing exports around the world.
Overview of Thailand's Economy
Thailand's economy is the second-largest in Southeast Asia (after Indonesia), but its per capita income is ranked fourth in the region, after Singapore, Brunei, and Malaysia. Gross domestic product or GDP growth had settled at around 4% to 5% per year as a long-term average, driven by a strong auto industry and its status as a significant exporter of rice and agricultural commodities, prior to the COVID-19 pandemic.
The pandemic disrupted supply chains, and caused trade, tourism, and domestic consumption to decline severely. Unemployment spiked, and GDP contracted 6.1% for 2020. Since then, however, growth has exceeded estimates, and was expected to return to pre-pandemic levels of around 5% by 2022, according to the World Bank’s June 2021 forecast.
The country's political leadership has been under pressure since the military coup in 2014. With a new Constitution in place, the country's leadership hopes to move past these issues and rebuild the economy, although Western sources remain skeptical. The military government's latest "Thailand 4.0" initiative is designed to free the country from its middle-income trap and make it a high-income nation.
Investing in Thailand with ETFs
The easiest way to invest in Thailand is using exchange-traded funds or ETFs, which offer instant diversification in the U.S. traded security. With over $400 million in total net assets as of March 2021, the iShares MSCI Thailand Capped ETF (NYSE: THD) represents the most popular option for U.S.-based investors to gain exposure to the Thai economy.
The fund holds around 120 different securities weighted primarily in energy and financials, with its three largest holdings accounting for more almost 40% of its portfolio. With an expense ratio of 0.59%, the ETF is cheaper than many actively managed mutual funds.
Investors should look at the fund's equity beta, concentration risks, and other factors before adding it to a portfolio. Historically, international ETFs focused on emerging markets have had higher beta coefficients than domestic ETFs, which means that they may be riskier for investors.
Buying ADRs and Stocks in Thailand
Investors looking for more direct exposure may want to consider purchasing American depository receipts or ADRs, which are U.S.-traded securities representing foreign equities like those in Thailand. While they aren't as diversified as ETFs, they represent a way for investors to purchase individual stocks to capitalize on more specific opportunities.
Popular Thailand ADRs include:
- Siam Commercial Bank (SMUUY)
- Advanced Info Service PCL (AVIFY)
- Bangkok Bank (BKKLY)
Investors should keep in mind that ADRs may have less liquidity than their domestically-traded counterparts on foreign exchanges. While the many UK and European ADRs have a lot of volume, emerging market ADRs—like Thailand's ADRs—may have significantly greater liquidity risk. Investors may also have to build their portfolio of ADRs for well-rounded exposure, which can be challenging when dealing with emerging market companies.
Risks of Investing in Thailand
Thailand's economy faces some geopolitical risks that investors should carefully consider before placing any money. Compound these risks, the country's economy may face some risks of its own related to inflation and monetary policy. Failure to contain any of these risks could destabilize the country and present major potential problems.
Key geopolitical risks to consider include:
- Thailand is susceptible to negative side effects of trade tensions between the U.S. and China, particularly decreased export demand and disrupted supply chains.
- Thailand has a long history of military coups, with 20 constitutions and charters since 1932, but monarchic rule more recently has been subjected to internal challenges, notably by younger protesters.
- Weak inflation remains a concern, hovering at around 1% before and after the pandemic. Factors include declines in public and private investment, and high household debt.
Investors should carefully weigh these risks against the benefits of investing in Thailand before making any investment decision. In general, it's a good idea to add Thailand ETFs or ADRs as just one part of a diversified portfolio to maximize risk-adjusted returns over the long run.