A Small Asian Commodity Play Your Broker Won't Mention
By Ian Davis
July 7, 2008
It's good to be a commodity exporter these days.
Since 2003, the big "ABC" commodity producers – Australia, Brazil, and Canada – have climbed 68%, 338%, and 106%, respectively. These three countries all have huge supplies of metals, energy, and agriculture.
Today, though, I'm going to talk about another beneficiary of the commodity boom... one you've probably never considered a commodity play: Thailand.
For starters, Thailand has large reserves of iron ore and rubber. China's construction and automobile industry have driven the price of these two commodities through the roof in the past several years.
Thailand is also the world's largest exporter of rice, responsible for 26% of all rice exports. Rice has tripled in price in the last four years. It climbed 175% in the first five months of 2008.
This is part of the reason Thai stocks have done so well lately. The Datastream Thailand Index has climbed 23.7% in the last year.
However, despite their recent gains, Thai stocks are still well below the all-time high they reached in 1996, more than 12 years ago.
Out of all the countries effected by the 1997 Asian Financial Crisis, Thailand is the only one that hasn't fully recovered. Take a look:
Thailand Peaked More Than 12 Years Ago |
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As you can see, Thai stocks soared in the '80s and early '90s. At the time, Thailand was a "tiger" economy, growing by more than 9% per year. However, by 1997, the economy became overheated, and the Asian Financial Crisis began...
So, is Thailand a good investment today?
From a trend standpoint, Thailand looks great. Thai stocks have steadily appreciated since 2002.
Thailand is also moderately free. It's the 54th freest country in the world (out of 157), according to the Heritage Foundation's Index of economic freedom. This is a measure of how much government control businesses face in a country.
However, Thailand has had some trouble lately...
Two and a half years ago, Thailand's president was ousted while addressing the U.N. in New York. Coups are never good for business, although this one was bloodless and generally supported by the people.
However, the new military-imposed government started off on the wrong foot. It installed controls on foreign capital, which immediately sent the Thai stock market into a tailspin. Fortunately, these restrictions were partially lifted, and the stock market has since recovered (aided by the commodity boom).
Finally, Thailand is relatively cheap. Its price-to-earnings ratio (P/E) is 11.4, 12.3% below its median level of 13 (the U.S. market carries a P/E of about 21).
You'll need specialized knowledge (and a specialized broker) if you want to buy individual Thai stocks. There are also three Thai ETFs. You can investigate them at www.etfconnect.com. Type "Thai" or "Thailand" into the search box on the top right-hand corner of the web page.
Asia's phenomenal growth will eventually produce a new bull market in the region's stocks. If you're looking for a unique way to play it, keep this commodity producer on your radar.
Good investing,
Ian Davis
