Thailand ETF Plunges on Shinawatra Indictment Fears

Shares of the iShares MSCI Thailand Capped Investable Market Index Fund THD are off more than three percent Friday and are flirting with their lowest levels in about six weeks on fears the country's recently approved $68 billion infrastructure spending bill could violate the Thai constitution along with rumors Prime Minister Yingluck Shinawatra could be indicted. Earlier this week, Thailand's cabinet approved the $68 billion infrastructure plan, previously hailed as a potential boon to THD because the ETF allocates about 40 percent of its combined weight to sectors that would benefit from improved infrastructure such as energy, telecommunications and utilities. The infrastructure programs includes billions to be spent on railroads, something the Southeast Asian nation is in desperate need of. The country is an export-driven economy and is located at the heart of the ASEAN region, yet has less than 4,000 kilometers of single-track railway. Combine that with sub-par roads, and Thai exporters face significant logistical challenges just to get their products out of the country. Now, the infrastructure plan could be in jeopardy, and Shinawatra's job could be on the line, but for different reasons. Just 18 months into her term as Thailand's first female prime minister, Shinawatra is under fire for issuing a passport to her brother, former Prime Minister Thaskin Shinawatra. He served as prime minister from 2001 to 2006 before being overthrown in a military coup. Thaskin's regime was toppled on charges of graft and corruption and he has been in self-exile for more than six years since. It is believed that Thaskin still holds sway over the Red Shirts, an anti-establishment group whose protests with the Yellow Shirts weighed on THD in three years ago. In other words, Thaskin Shinawatra can be considered a polarizing figure in Thailand, but unfortunately for his sister and THD shareholders, Thaskin is not his sister's only problem. The current prime minister is also under fire because of discrepancies in paperwork she submitted to the National Anti-Corruption Commission upon becoming prime minister. At issue is the fact that her husband, Anusorn Amornchat, amassed a position of over 4 million shares in a Thai company called Ad Index before his wife became an obvious candidate for prime minister. The prime minister said she made a loan to the company in 2006, though records indicate no such loans appear on the company's books until 2007. Ad Index is not one of THD's 92 holdings. The loss of Yingluck as prime minister could have near-term consequences for THD, assuming the worst-case scenario plays out. Thailand already has a history of political volatility and THD has shown a penchant for adversely reacting to that volatility. Additionally, it is worth remembering that many market participants wanted Yingluck to emerge victorious in 2011 because she was viewed as the pro-business candidate. Investors have been rewarded as THD was trading in the low $50s 18 months ago. On March 18, the ETF traded above $93. THD's Friday decline has taken the ETF below its 50-day moving average and the ETF could fall another six or seven percent before finding next support, indicating the fund is at an important fundamental and technical juncture. For more on Thailand, click here.