Can Thailand fund’s surprising run continue?

Asset Class in Focus

The Templeton Thailand fund has so far weathered two decades of turmoil to stand out as a single-country out-performer, but this year there are risks on several fronts.

Ten years before the US-led global financial crisis, Asia’s boom-and bust crisis began in Thailand when its currency came under speculative attack during the summer of 1997. It was not the most auspicious time to market a dedicated Thailand equity fund.

Nevertheless, Templeton went ahead and launched in June. Investors who had put up with the initial pain would have enjoyed a 626% cumulative return since January 1999, compared with 422% by the MSCI AC Asia ex-Japan index and 454% by the Asia Pacific Single Country sector, according to FE Analytics data.

A military coup d’état in 2014 after several years of political conflict and an underperforming economy discouraged foreign investors. Besides, structural reforms and economic growth in other Southeast Asian countries, such as Indonesia, the Philippines and Vietnam, were more enticing.

Yet, the investors in the $152m Templeton fund during that year of violence and stagnation have again been rewarded. It is the best returning fund over five years among the 28 constituents of the single country sector. Two other actively-managed Thailand funds (from JP Morgan and Amundi) are also among the top five.

It earned a 83.82% five-year cumulative return, compared with 15.91% for the sector average and exceeding the MSCI Thailand Index’s 60.22% return.

The fund achieved its return with greater annualised volatility than the sector average – 13.43% compared with 12.30% – but much lower than five Indonesia-focused funds with annualised volatility in excess of 20%.

Risks on several fronts

However, there are some risks worth highlighting. Fund manager Sukumar Rajar is relatively new. He has only been in  charge for five months and needs time to establish a track record with the fund. His portfolio, as at end of December 2018, shows overweight allocations to healthcare, consumer cyclicals and defensive, property and financial services.

Moreover, the IMF forecasts 3.9% GDP growth in Thailand this year after posting 4.6% growth in 2018, predicated largely on the deleterious effects of the Sino-US trade dispute, which will also likely harm other emerging economies.

According to local news reports, Thailand policy makers will make efforts to strengthen the domestic economy, which may be why the portfolio is concentrated on stocks linked to private consumption.

However, political risk to investments may also be increasing this year. The current military junta has again delayed the election date, moving it forward one month to 24 March from February. Demonstrators on the streets for the first time since 2014 might signal the start of a period of escalating discontent.

Additionally, Thailand’s current prime minister, Prayuth Chan-ocha, the army chief who seized power in the 2014 military coup, recently announced he will stand for election in March.


 

Templeton Thailand Fund vs MSCI Asia ex-Japan and vs Asia Single Country Sector 

Source: FE Analytics. Five-year cumulative performance in US dollars.

 

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