For a while, when I first started looking at the investment company sector, it seemed as though single country funds were deeply unpopular.
Part of the problem might have been that their focus on a single country made it easy for activists to hedge the underlying portfolio but I think the perennial problem with these funds is that countries fall in and out of favour with investors. Aberdeen New Thai (ANT) is a survivor, however.
Launched in 1989 it has coped with a number of booms and busts, including the Asian currency crisis and the credit crunch. Its long-term performance looks very good – since launch its shares have risen almost fourfold – but there have been periods when it has struggled.
Single country funds exhibit a much greater degree of political and economic risk than regional ones, as Ukraine Opportunities is finding out now. Often, with hindsight, these periods turn out to be buying opportunities but occasionally investors will lose faith to such an extent that the fund ends up being wound up.
Political crises, floods and external economic problems have beset Thailand in recent years and now it is attracting attention for all the wrong reasons as rival political factions vie for control. Despite the image many have of an easy-going country, politically it is quite unstable, with 18 coups or attempted coups since 1932.
The government is headed by Yingluck Shinawatra, whose brother Thaksin was ousted as prime minister by a military coup in 2006. They are supported by the red shirt faction, composed mainly of the rural population who are encouraged by populist measures such as rice subsidies. They face off against the yellow shirts, who are mainly made up of the middle and upper class.
They rail against the corruption they say is associated with the Shinawatras. Street protests, sometimes turning violent, have been a long-running feature of the dispute.
In January 2014, the government declared a state of emergency to cover the period leading up to the election, planned for February. This was not lifted until the middle of March.
Protesters disrupted the elections however. These returned the government to power but street protests continued. In March the constitutional court declared the elections invalid, as they hadn’t been held on one day as required by the constitution.
Thai companies are getting on with things as best they can. At the start of 2014 Aberdeen thought the Thai economy, which had been generating 4-5% growth, could manage to match this pace in 2014.
Fourth quarter 2013 GDP growth was at a much lower run rate than this, however, at just 0.6%. Exports are 70% of GDP. However, as Thailand’s major trading partners are Japan, China, Europe and the US, they are not getting much external help. Prices of some agricultural exports have been falling as a result.
Overall exports fell in January. The political uncertainty and weak external demand have led to a fall in investment by companies. There has also been a knock-on effect on consumer confidence, evidenced by a 46% year-on-year drop in car sales.
Aberdeen Asset Management does not think Thai stocks are particularly attractively valued at the moment, though it does have a reputation for being conservative. After a strong run of performance by the Thai market, the middle part of 2013 was problematic. The trigger was the Federal Reserve announcement it was considering reining in quantitative easing. Downgrades to economic growth in August were also unhelpful (technically Thailand was in recession in the first half of 2013) and, to compound this, the baht was also weak.
ANT is managed by a team based in Thailand. They try to generate capital growth (income is a by-product). As with other Aberdeen funds, the team is tasked with constructing a portfolio of well run, good quality companies with low leverage and good long-term cash flows.
ANT’s portfolio is fairly concentrated, with 35-40 holdings. The top 10 account for just over 50% of the fund. They do make significant bets against the benchmark. Current overweights are to the insurance, media and finance sectors, with underweights in communications and technology.
Today ANT trades on a discount of about 16% which is towards the lower end of its recent range. It has a market cap of £79 million, which makes it a bit on the small side and harder for its directors to recommend buy-backs. It faces a liquidation resolution if its discount exceeds 15% on average over the 12 weeks before year-end (28 February).
As I write this, ANT’s final results are due and I fear this liquidation resolution might have been triggered. It would be a shame if this fund disappeared, especially if its liquidation was forced while Thailand is out of favour.
James Carthew is a director of Marten & Co