Quick Look at Thai CEFs as Morgan Stanley Lowers GDP Projections for Thailand (CEFs: TF, TTF)

Morgan Stanley analysts Andy Xie and Deyi Tan downgraded their forecast for Thailand's GDP from 5.4% to 4.9% due to political insecurity. They also raised inflation forecasts from 4.5% to 5%. Xie and Tan voice their concern that political uncertainty could last through the end of 2006 and beyond, with significant impact on the local economy. They did not revise their 2007 forecast yet, but anticipate that if their are no major changes in the coming months, they will have to do so. Highlights from their recommendation:

The 4Q05 GDP growth rate was 0.9% QoQ vs. the market’s expectation of 1.4%. This confirms the slowing trends in consumption and property in response to rising interest rates and high energy prices. The trends are likely to continue as the high capacity utilization levels keep inflationary pressure high and interest rates rising...

We believe that the Bank of Thailand will raise interest rates by 75 bp to 5% before the end of 2005. Headline inflation may decelerate to 4% by the year-end. This would still leave real interest rates quite low. We see the potential for further rate hikes in 2007...

4Q05 GDP growth was 0.9% quarter on quarter, vs. the market expectation of 1.4%, due to consumption and property weakness. This is to be expected as interest rates and oil prices have risen considerably. As long as the economy is at full capacity, interest rates will need to rise further. Hence, consumption or property recoveries are not likely this year...

The political uncertainty could considerably delay investment recovery, which is badly needed to sustain economic growth in a fully employed economy. The government has recently cut its predicted Bt 250 billion (3.5% of 2005 GDP) of investment into government-initiated mega projects to Bt 150 billion due to political uncertainty. As that uncertainty has worsened considerably in recent days, we think the outlook for the mega projects in 2006 is now much dimmer...

One glimmer of hope is that Thailand’s solid export performance could push the private sector to invest in building capacity regardless of the political environment. However, such a mitigating factor is unlikely to reverse the decelerating trends elsewhere.

See Xie and Tan's full analysis.

There are two closed end funds tracking Thailand. Morgan Stanley's Thai Fund (TTF) was established in February 1988, with an inception price of $20 and inception NAV of $11.02. Daiwa's Thai Capital Fund (TF) was established in 1990, with an inception price of $25.25 and inception NAV of $22.06. Performance history is highlighted below for TTF and TF. (Source: ETFConnect)

Also note the graph below comparing the peformance of the two funds over two time frames: last twelve months and previous four years. TTF is represented by the black line, and TF by the yellow line in both charts.

THAI FUND (TTF)

THAI CAPITAL FUND (TF)

TF/TTF 1 year Performance

TF/TTF 4 year Performance