Guide to Investing in Thailand
Investing in Southeast Asia's Second Largest Economy
Thailand is the world's 51st largest country by area, 20th largest country by population and the 28th 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.
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, but quickly recovered to 3.2% in 2016, and 3.9% in 2017. And, economists believe that the economy will grow 4.2% in 2018.
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 ("ETFs"), which offer instant diversification in a U.S. traded security. With nearly $500 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 120 different securities weighted primarily in financials and energy, 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.
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 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)
Investors should keep in mind that ADRs may have less liquidity than their domestically-traded counterparts on foreign exchanges. While 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 own 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 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.
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 in order to maximize risk-adjusted returns over the long run.