NEW YORK (TheStreet) -- iShares MSCI Thailand (THD) - Get Report remained a sturdy performer during the recent market turmoil and has gained ground in 2010 (8% as of yesterday's close). A check of the headlines reveals little to brighten one's day, however.
Political violence has calmed down after a military crackdown dislodged protesters who had taken over a chunk of Bangkok's business district, but things aren't back to normal. The country is still under a state of emergency, which was recently extended one month -- though the prime minister says it could be ended sooner. A water crisis has rice production down, though rubber production looks set to increase. Southern Thailand remains a source of instability due to Muslim insurgents, who recently bombed a mosque.
A check of the stock chart shows something different, however. From April until today, THD remained surprisingly resilient, even during the height of the violence. It didn't completely avoid the global downturn in the markets, but it brushed off the "flash crash" in early May and started to rebound on May 21 and moved steadily higher.
iShares MSCI Emerging Markets
is flat since May 21 and the S&P 500 Index has gone lower.
Even an unfavorable choice of time periods, measuring THD from its April 6 high following a 20% rally from February lows, still shows this ETF outperforming both EEM and the S&P 500 Index.
Whenever a stock or fund can weather a torrent of bad news, investors should pay attention. It's generally a sign that investors have priced in the bad news or that they do not believe the news will have as great an impact economically as might seem at first blush. In the case of Thailand, the market seemed to move with internal momentum. It sold off based on the political crisis within the nation and recovered once the situation improved. A strong signal that THD might perform well came when the fund ticked higher on one of the worst days of violence during the protests.
It may also be the case that there's a lot of experienced investors here, and those that have been around awhile have already gone through similar or worse turmoil, from coups to the Asian Crisis. And it's that latter event that makes me wonder whether Thailand is a safer investment than France.
The central problem in Europe is debt and because so many nations in Asia already went through a major financial crisis, they have cleaned up their balance sheets and behaved prudently in the aftermath. In the 1990s, Thailand had two big problems, as did most Asian nations: it had borrowed a lot of U.S. dollars and the debts were of short maturity. The bill came due and they didn't have enough foreign currency to pay it.
Today, some European nations are in a similar situation. They have large debts maturing this year and in the next few years, and they have borrowed in euros, a currency that, like Thailand with the U.S. dollar, they do not print. While the situation is not exactly the same, since European countries do have some control over the European Central Bank, the main threat, a debt crisis that damages an otherwise strong economy, is the same.
Eventually, Thailand was forced to abandon its peg with the U.S. dollar and devalue, sending the baht down more than 50%. France is unlikely to return to francs and devalue against the euro, but it is possible that the ECB will further devalue the euro in order to solve the ongoing debt crisis. Even if European stock markets trade sideways, the currency losses may be enough to drag down eurozone ETFs.
In terms of recent performance, THD has trounced
iShares MSCI France
, in addition to other eurozone country ETFs--but this trend has been going on since emerging markets bottomed in the fall of 2008. A chart of the price ratio between THD and EWQ, where a rising line shows THD outperforming, shows the difference. In December 2008, the two ETFs traded for the same price, but today, THD is more than double the price of EWQ.
I don't expect THD to beat EWQ in the near term, as we're likely to see the euro stabilize here and bounce a bit, but the overall trend is likely to stay in place.
THD is not alone in its outperformance. It is joined by other Asian nations that went through the Asian Crisis, such as Indonesia and Malaysia.
Market Vectors Indonesia
has been a steady performer since the fund's inception in January 2009, having gained more than 180%. Corruption is still a problem there, but the trend is towards a more liberalized economy. The government recently opened new sectors of the economy to foreign investors, while lifting the ceiling on foreign ownership stakes in other sectors.
iShares MSCI Malaysia
is another country ETF performing well. Malaysia's debt to GDP is less than 35%, and the growing economy has led the central bank to raise interest rates twice this year.
Right now, the greatest concern for investors is sovereign debt and it's the European nations that are under the microscope. When investors speculate about who is next, countries such as Japan, the U.K. and the U.S. are mentioned. In Southeast Asia, however, countries are quietly growing their economies at a healthy pace, with much less sovereign debt thanks to their defaults and currency depreciation in the late 1990s. While these countries remain volatile investments, they're likely to outperform until the sovereign debt issue is solved.
At the time of publication, Dion Money Management owned THD.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.