Will Thailand ETF Pay The Price For Protests? [iShares MSCI Thailand Inv Mrkt Index Fd]

thailandThe Thailand ETF was one of the best performing emerging market ETFs this year, having clocked a gain of about 20% till early May. However, while the economic indicators were in favor for the nation unlike many of its emerging market cousins, a heightened political upheaval made the run for the Thai ETF anything but smooth in the last couple of days.

Thailand has seen severe political unrest for last six months that heightened early this month when the Thai Constitutional Court casted out Prime Minister Yingluck Shinawatra in a “judicial coup”. The protest was basically intended to drive out Yingluck Shinawatra’s administration, which was built on the political structure of former Prime Minister Thaksin Shinawatra.

The coups are in protest of an amnesty for transgressions dating back to the 2006 rebellion that expelled Thaksin Shinawatra, the brother of Yingluck Shinawatra. A snap election was conducted in February, but protesters interrupted polls leading the court to call the election unacceptable.

Following the removal of Shinawatra, anti-government activists insisted on an unelected leader to which pro-Shinawatra party warned of a “civil war”. As of now, the re-election that was due in July has been cancelled due to escalation in protests.

Economic Aftershock

Quite expectedly, persistent protests have left deep scars on the nation’s economic picture especially hurting government spending and the all-important Thai tourism industry (contributed 7% of the country’s GDP).

According to a Rodl & Partner report, in February, the Tourism Authority of Thailand predicted losses of Baht 90 billion in income if the political mayhem stretches another six months.

In the final quarter of 2013, Thailand’s GDP nudged up 0.6 % from the year-ago period marking the slowest quarterly growth rate in almost two years hurt by the protests. The National Economic and Social Development Board (NESDB) of Thailand slashed its investment growth estimate for this year to 3.1% from the previous forecast of 7.1% mainly to reflect lower public spending. Consumption growth estimate also almost halved to 1.6% from 2.9%.

Also, NESDB reduced its economic growth forecast to 3% to 4% from the previous range of 4% to 5%. This growth is also highly dependent on export numbers. If exports do not reach the 5% goal, Thai economic growth might fall to less than 3%.

Notably, persistent slowdown in its biggest trading partner, China, poses some threat to Thai exports (read: China ETFs Tumble to Start 2014). In March, the bank of Thailand cut its key interest rate to 2% pushing it down to the lowest level in more than three years primarily to bolster economic growth.

In keeping with the pessimistic backdrop, in April, World Bank also reduced its growth forecasts from 4.5% to 3%. As per World Bank, the anti-government riot is nothing but holding up the big ticket public infrastructure projects thus crippling the growth prospect even for the long term.

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