Thai Stocks in the Limelight as Protests Continue

Over the last few weeks, protests in the Thai capital have intensified. After starting off as a reaction to a controversial amnesty bill, the movement has become a full-blown rebellion aimed at toppling the current elected government. While things have settled down ahead of the king's birthday, it is unclear how the situation will turn out. As such, Thai investors are closely watching the situation in Bangkok at the moment, with ETFs especially in the spotlight for foreign investors. What do the protests mean for Thai stocks?

The situation
After several years of relative political stability, civil unrest has broken out in Bangkok after the House of Representatives of Thailand passed an amnesty bill on Nov. 1 that would have facilitated the return of the self-exiled former Prime Minister Thaksin Shinawatra. The bill was later shot down by the Senate, but protests are nevertheless ongoing and even intensifying in some areas of the capital.

According to some political analysts, the current clashes could force the Thai government to the brink as the movement has evolved into a full-blown anti-government protest. Initially, the protests were relatively peaceful, but things have become increasingly violent over the last week. Protesters have started besieging crucial government ministries, which, according to one member of parliament, "cannot be considered anything but insurrection."

Four people have died in violent clashes so far, with many more injured. Things don't appear to be getting much better, either. The leader of the protests, Suthep Thaugsuban, has now urged supporters to actively target the police following attempts to storm the prime minister's office. The Thai government has so far rejected protesters' demands to step down and replace the currently elected regime with a "People's Council" and has issued an arrest warrant for Thaugsuban on charges of insurrection.

Protests were halted abruptly for the king's birthday. The symbolic head of state has long served as a unifying figure in the country, and he used the opportunity to call for stability and unity. While he made no direct reference to the situation in Bangkok, it was fairly clear that his remarks were aimed at this topic with the country deeply divided at the moment. However, it remains to be seen how things will turn out in the coming weeks. 

ETFs to watch
There are two main ETFs that track Thai stocks. The best-known is probably iShares MSCI Thailand Capped ETF . This fund has around $550 million in assets under management, and it is heavily weighted toward financials, with around 35% of its holdings in this sector. Siam Commercial Bank is the fund's largest holding, making up 7.3% of the portfolio. Last Monday the fund dropped about 2.5% following the escalation of the protests. The Baht has also depreciated against major currencies due to the unrest.

Another product that tracks Thai stocks is the Thai Fund , which has a market value of around $286 million. The ETF did a bit better in Monday trading, dipping about 1.5%. Perhaps this is due to the fact that the fund is less weighted toward financials, with the sector making up around 21% of holdings. It's more expensive than the ETF mentioned above: Management will charge you nearly 1.5% to handle your money, versus the iShares fund's expense ratio of 0.6%.

For investors who want exposure to Thailand but want to avoid some of the current volatility in the country's politics and stock market, the FTSE ASEAN 40 ETF might be an interesting bet. Thai securities are weighted at about 16%, and the fund has a fairly low expense ratio of 0.65%. Financials make up most of the fund's holdings, weighted at about 40%. Geographically, this ETF is focused mostly on Singapore, with Malaysia and Indonesia also well-represented.

The bottom line
Thai stocks have been closely watched over the last few weeks as protests in Bangkok have become violent. After starting off as a reaction to a controversial bill, the movement has now vowed to topple the government. As such, ETFs tracking the Thai market have been seeing higher volatility, which is expected to continue if the situation worsens. Investors looking to avoid some of the volatility in Thailand may consider an ETF with broader country exposure.

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