Thai Coup Update: Time to Invest?

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Thai Coup Update: Time to Invest?

“Thailand, like many Tier 2 emerging countries, has a history of faux political instability. I say faux, because the instability in the system is actually expected.”

That’s what I wrote back in 2012 in my book, Where in the World Should I Invest?

Well, the Thai market has once again delivered on this instability now that the military overthrew the government last week. (I actually had a heads-up about the coup before it was publicized globally, when a college buddy of mine who lives in Bangkok sent me a picture of tanks and soldiers in the streets.)

But instead of running for the hills as many investors are apt to do right now, let’s look at the coup for what it really is . . .

The Least-Shocking Military Move in History?

In my experience, coups in Thailand tend to be nothing more than an announcement that it’s election season.

There have been 19 military coups in Thailand over the past 82 years, almost one every four years.

It’s how they remove entrenched and corrupt governments from power – and set the stage for the next corrupt leader to step in.

The fact that Thailand elected Yingluck Shinawatra in the first place – just five years after the military ousted her older brother for corruption – gives you some insight into why Thailand is a “forever-emerging” economy.

Indeed, corruption in the country is the rule of law. Until that changes, Thailand’s military will always be a major factor in the country’s ultimate governance.

But that doesn’t mean investors should be turning away . . .

The Ideal Time to Jump Aboard

It’s important to note that Thailand is chugging along just fine. Business is carrying on despite the media frenzy, which happens to be blocked out locally as the TV stations are off air.

This shouldn’t be surprising. After all, in a country that has seen 19 coups, it’s hardly big news.

Sure enough, the Thai market barely blinked when news of the coup hit – falling 2% before recovering most of its losses. And the Thai baht barely budged against the dollar.

These are the indicators you should be paying attention to.

The Thai market is very small. And like every other emerging market, it can be very volatile. It doesn’t take much buying or selling to move the needle.

Case in point: The market was negative in 2013, but is actually up 7.5% so far in 2014.

This positive movement in the market, along with the activity on the ground, is signaling that things are a lot more “normal” than they appear on the surface.

Of course, there is the chance that this coup could take a wrong turn. Past attempts to overthrow the government have turned ugly.

But the probability isn’t high this time around. This overthrow has been a long time coming and – given the reputation of the Shinawatra family – not entirely unpredictable.

Thailand is a growing market, with GDP growth averaging more than 4% per year for the past decade.

Heck, since 1980, Thailand’s economy has grown by more than 1,000% in U.S. dollar terms, despite the country’s many attempts to screw up its potential.

It’s also the top destination for tourist dollars in Asia, with tourism making up 9%-plus of its GDP. Not to mention that the black market in Thailand is alive and well – adding untold billions to economic activity.

Now, it might not be time to go “all in” on Thailand. But the current crisis is providing a great entry point if you have no exposure to the country or region.

And perhaps the best way to play Thailand right now is by taking a position in the Thai Fund (TTF). This is a closed-end fund that trades on the NYSE. It’s just off its 52-week low – and down more than 50% from its highs. Best of all, the fund is trading at a 12% discount to its net asset value, which means you can buy $1 worth of Thai shares for around $0.88.

Bottom line: Thailand has massive potential as a major and modern Asian hub that’s smack dab in the middle of the greatest migration of wealth we’ll see in our lifetimes. As other investors hang out on the sidelines waiting for the situation to play out, I recommend taking advantage of this momentary pullback.

Ahead of the tape,

Karim Rahemtulla

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