Political risk has riled markets, but in the case of Thailand, Thai markets and country-specific ETF has rallied after the former prime minister absconded before potentially receiving a 10-year prison sentence.
The iShares MSCI Thailand Capped ETF (NYSEArca: THD) has gained 5.7% over the past month and increased 18.4% year-to-date.
Thailand’s equity market has rallied since late-August to four year highs, with the SET benchmark positioned to potentially break above the record set at the start of 1994, the Wall Street Journal reports.
Further strengthening the market outlook, the baht currency has appreciated 7.5% against the dollar this year and is among the best performing Asian currency.
“Anyone that has traded Thailand for any length of time is all but immune to political risk,” Andrew Bresler, deputy head of sales trading for Asia-Pacific at Saxo, told the WSJ.
The Southeast Asian country has been ruled by a military junta since then-Prime Minister Yingluck Shinawatra’s government was ousted in 2014. Elections scheduled next year are another point of interest for investors.
Given its penchant for political coups, Thailand has been viewed as a hotbed of risk among emerging markets. However, market participants see improving fundamentals that could lead to sustained gains for Thai markets.
“Earnings-growth momentum is shifting from commodities to domestic sectors and is reducing market sensitivity to oil prices,” Société Générale said in a recent research note as the investment bank turned to overweight on Thai stocks. “In the context of attractive valuations, we believe conditions are in place for equity outperformance to resume.”
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Economic activity has also been supportive of a more positive outlook. Gross domestic product increased at a stronger-than-expected 3.7% in the second quarter, with the Thai government projecting GDP to expand as much as 4% this year.
“In the absence of either tighter monetary policy out of Thailand or some sort of geopolitical event that drives all markets lower,” stocks there “will probably continue to go higher,” Saxo’s Bresler said.
For more information on the Thai markets, visit our Thailand category.