Guide to Investing in Thailand

Investing in Southeast Asia's Second Largest Economy

Sylvain Sonnet / Getty Images.

Thailand is the world's 51st largest country by area, 20th largest country by population and the 32nd largest country in the world by economic size. 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.

In this article, we will take a look at Thailand's emerging economy, some key risk factors to consider, and how investors can gain exposure to the country using ETFs and ADRs.

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 ("GDP") growth has settled at around 4-5% per year as a long-term average, driven by a strong auto industry and its status as a large exporter of rice and agricultural commodities.

After experiencing a setback with major flooding, Thailand's economy had been recovering strongly since 2013, thanks to a higher minimum wage and infrastructure projects in areas devastated by flooding. The country's GDP contracted by 0.3% in 2015, however, and inflation remains above its target rate following a military coup in 2014 that left the country in recession.

The country's political leadership has been under pressure given the country's poor economic performance following the coup.

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.

Investing in Thailand with ETFs

The easiest way to invest in Thailand is using exchange-traded funds ("ETFs"), which offer instant diversification in a U.S. traded security.

With more than $300 million in total net assets, 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 over 130 different securities weighted primarily in financials (26.88%) and energy (15.45%), with its three largest holdings accounting for more than 20% of its portfolio. With an expense ratio of 0.62%, the ETF is cheaper than many actively managed mutual funds, while its equity beta stands at just 0.76, as of August 2016.

Buying Thailand ADRs & Stocks

Investors looking for more direct exposure may want to consider purchasing American Depository Receipts ("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)

Risks of Investing in Thailand

Thailand's economy obviously faces a number of 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:

  • The country faces a high exposure to China's slowing economy, while the government is in a transitory phase of developing a new constitution.
  • The government faces ongoing insurgency involving ethnic Malay Muslim rebels in the South, which threatens to destabilize the region, if left unresolved.
  • Inflation remains a major concern given the economy's strong economic recovery, which could threaten consumer spending and political unity.

Key Points to Remember

  • Thailand's emerging newly industrialized economy represents a key emerging market for international investors, particularly as it's the second largest economy within Southeast Asia - a key area of worldwide growth.
  • There are several different options for investing in Thailand, including ETFs and ADRs, with the iShares MSCI Thailand Capped ETF being the most popular option. But, investors should be aware that the ETF is overweight in financials.
  • There are many risks that investors should consider before investing in Thailand, including certain geopolitical risks and inflationary risks associated with its growth.