Once again, politics put Thailand ETF in the spotlight; trading lower by 2.3%

Since the start of the year, the Thai stock market has hovered at around 1200 to 1300, with a total foreign selling net of about US$150 million and retail investor net selling about US$450 million. However, given the local political turmoil, recent reports says about 60% of large Thai corporations, many stock market listed, are heading to invest abroad. The Thai crisis, as most global press says, is a double whammy of “Judicial Coup” to outs Yingluck, putting the spotlight back on to the street struggle. Without immediate compromise, “there will be an increased risk of Red Shirt paramilitaries staging sporadic hit-and-run attacks on antigovernment Yellow Shirt–affiliated assets in the next two months,” says Alecia Quah, senior analyst for IHS Country Risk, tole Time magazine. Thursday’s ruling, she adds, “renders the prospect of a political compromise between the Pheu Thai and opposition forces even more remote.” Fears are meanwhile growing for the health of the Thai economy during the continuing political crisis. “If a resolution is not found soon, our below-consensus [growth] forecast of 2% for this year will come under threat,” says Krystal Tan, Asia economist for Capital Economics, to Time Magazine.

The following is from ETF Trend:

Once Again, Politics Puts Thailand ETF in the Spotlight

Shares of the iShares MSCI Thailand Capped ETF (THD) are trading lower by 2.3% Thursday , a day after Prime Minister Yingluck Shinawatra was removed from power for reportedly firing a senior bureaucrat in 2011.

Despite a wave of political tumult and mounting evidence of Shinawatra’s vulnerability in elections scheduled for July, the $550 million has been one of the best single-country emerging markets ETFs this year, posting a gain of 20% before Thursday. [Tumult Not Yet Hampering Thai ETF]
The removal o f Shinawatra marks the third time in six years a Thai prime minister with ties to the family has been removed, according to the Wall Street Journal. Yingluck replaced her brother Thaksin, who is no longer allowed to enter Thailand.

For the bulk of the younger Shinawatra’s premiership, THD performed well and Thailand was politically stable, but she invited problems by attempting to pass an amnesty bill last year that would have overturned Thaksin’s corruption conviction that prompted his exile from the country. [Political Volatility Hampers Thai ETF]

Thailand’s constitutional court ruled Yingluck abused her role as prime minister by sacking Tawin Pleansri, a security adviser, in an effort to allow her brother to return to the country. Yingluck has also come under fire for trying to fix global rice prices, the Journal reported. Thailand is the world’s largest rice exporter.

“The Thailand SET 50 Index (SET50) is showing the largest negative risk-adjusted return inEquities. The Thai Baht also weakened after the Constitutional Court removed PM Yingluck Shinawatra and nine of his cabinet ministers on Wednesday. The National Anti-Corruption Bureau could rule on charges that the government mishandled its rice-pledging program as soon as today. On Saturday, the ‘Red Shirts’, supporters of Ms Yingluck, will hold a rally in Bangkok, which will be followed by a rally by anti-government PDRC protesters on May 14th, raising the possibility of street clashes,” said Rareview Macro founder Neil Azous in a research note.

THD’s struggles this week have the ETF trading barely above its 50- and 200-day moving averages. The ETF reclaimed its 200-day line in March after not having closed above that moving average since September 2013.

The impact Thai political violence can have on THD cannot be overlooked. Prior to last year’s second-quarter decline on speculation the Federal Reserve was preparing to taper quantitative ease, the largest prior multi-week decline for THD took place in 2010 when the Red Shirts and Yellow Shirts clashed in bloody protests.

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