THD: Macro Improvements Point To Full Recovery In 2025

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Thailand's economy should fully bounce back by late 2024 or early 2025, but growth still lags behind regional peers.The World Bank projects Thailand's economy to grow by 2.4% in 2024 and 2.8% in 2025,...

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However, the economy's growth is still below that of regional peers in Asia and will not likely catch up in the short term. The iShares MSCI Thailand ETF (NYSEARCA:THD) has experienced a lot of selling pressure due to these macro headwinds. Data by YCharts Thai equities have pulled back by over 10% this year and could experience additional selling pressure during the second half of this year. Thailand's economic recovery prospects look favorable, but equities are not necessarily priced at an amazing bargain at the moment. Thailand's Growth Outlook Thailand is on track to deliver stronger growth in 2024 and 2025, as exports improve, domestic consumption rises, and tourist arrivals begin to bounce back to their historical norm. Thailand's economy was previously in a slump, largely due to declining tourist arrivals, as it faced a recession in 2020. The economy only grew by 1.9% last year. Focus Economics The World Bank projects that Thailand's economy will grow by 2.4% in 2024 and 2.8% in 2025. This is a much-needed trend as the country's growth rate has been slow relative to other regional peers such as Vietnam, Malaysia, and Indonesia. World Bank So far, the country's economic growth narrative has not been that convincing, as growth was only 1.5% during Q1 2024, while other key regional markets like Indonesia have been growing at over 5%. Some of the main factors that resulted in this slower growth included weaker export growth and lower tourist arrivals, particularly Chinese tourists. The country's exports fell by 2% during this quarter, while tourist arrivals only reached 86% of the pre-pandemic levels. Even if Thailand hits the projected growth rate this year, it will still likely lag behind most of its regional peers. Another strong risk in this market, relative to other regional peers, is the country's rising public debt levels, as its public debt to GDP ratio rose from around 41% in 2019 to over 60%. World Bank One main area of concern is that Thai equities are still priced in line with emerging markets and regional Asian peers, despite the slower growth prospects. Thailand still commands a slight premium to MSCI Emerging markets on a PER basis, which means the market could be vulnerable to short-term pullbacks. MSCI One positive point in Thailand is that the country's Central Bank has successfully contained inflation and is in a much better position to begin cutting rates to fuel growth in 2025. Inflation is beginning to recover in many countries globally, and Thailand has been a relatively positive case as inflation is under control and the country's Central Bank did not have to aggressively hike interest rates to achieve this state. Deloitte Inflation in Thailand peaked at around 7.8% in August 2022 and has since improved substantially, as inflation was only 0.8% last month. While this is a significant improvement, it is also important to note that the Thai government is moving to gradually reduce energy subsidies, which could cause inflation to bounce back slightly in subsequent quarters. Thailand's Inflation Rate Trading Economics The Bank of Thailand recently decided to hold rates steady in a 6-1 vote, keeping its benchmark interest rate at 2.5%. The BOT will meet again on the 21st of August and may rule in favor of a 25 basis points rate cut to help boost the economy. Exports Poised to Improve Global growth is projected to decline in 2024, which could have a negative impact on Thailand's exports. In previous months, weaker imports from key partners like China and Japan have taken a toll on Thailand's economic growth. Deloitte Thailand's main export markets include the United States, China, and Japan, which collectively account for around 36% of its total exports. The slowdown in other key global economies in several key markets is one of several factors that has caused Thailand's growth to lag behind regional peers. Thailand's exports had a poor performance during the first quarter of the year, driven by weak performance in multiple areas like electronics, automotive, and mining products. Exports declined by over 10% YoY in March, which was the first monthly contraction in eight months. Exports declined in all of its key markets, except the United States, as exports grew by 2.5%. SCB projects that Thailand's exports will grow by 2.6%, following the improvement experienced in Q2 2024. An improvement in key markets, like China, has helped to spur optimism about Thailand's economy and global trade. Despite some of these monthly slumps in export growth, Thailand has still been able to maintain a current account surplus. The World Bank projects that its current account surplus will remain at around 1% of GDP this year. Thailand's Tourism Arrivals Have Bounced Back Tourism growth is beginning to bounce back and should kick into full force in 2025 when tourist arrivals potentially bounce back to the pre-pandemic levels. Thailand has already received 17.5 million tourists during the first half of the year and is on track to potentially have over 35 million tourists visit in 2024. During 2023, only 28.2 million tourists visited Thailand. 2020 and 2021 were very challenging years for the Thai economy, as the massive slump in tourist arrivals in 2020 caused Thailand to enter a recession. Annual Tourist Arrivals (millions) Statista Although 2023 was a favorable year for Thailand's tourism industry, it appears that it will take another year for Thailand's tourism industry to fully bounce back. Fitch Solutions projects that Thailand's tourist arrivals will grow by 28% this year to reach 36 million, and then reach 41.6 million in 2025. Other initiatives, such as the Thailand Elite Visa program, could also help support the economy. iShares MSCI Thailand ETF: Solid Vehicle This ETF looks like a solid vehicle to gain exposure to Thailand's economic improvements in H2 2024 and 2025, especially since Thai ADRs are less liquid and trade on the US OTC markets. Moreover, this ETF has plenty of positive characteristics, such as its valuation and portfolio composition, which make it an excellent investment vehicle. It is not overexposed to financials and energy companies and does not have a strong concentration in large, overvalued names. One of the first positive characteristics to note about this ETF is its relatively attractive valuation, as it trades at a slight discount to the MSCI Thailand Index. iShares This ETF accesses the market at a relatively lower valuation without having to make concentrated bets on sectors that typically trade at a lower valuation, which is a very positive characteristic. It also only invests up to 6.8% of its assets in a single name. iShares Thailand's stock market has been in a relatively long period of underperformance in the past decade, as declining tourism and global trade hit this economy particularly hard due to its dependence on tourism and exports for growth. Data by YCharts Thai equities have also significantly underperformed regional peers since 2020, underperforming key markets by up to 21 percentage points since the beginning of 2020. Data by YCharts  The market should respond positively to some of the macro improvements that take place in 2024 and 2025. In the long run, this underperformance trend will not likely last, and Thai equities could be positioned to have a stronger 2025. Overall, the macro improvements that are in store in the next year outweigh concerns about the market's valuation, and Thailand looks like a good hold at the moment.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2459218673"}