This from The Sovereign Society:

You know by now that emerging market currencies are like bodybuilders on steroids.

When they get their fix of liquidity (capital flowing in) they are very powerful and outperform the major currency block by a wide margin. But if their source dries up, just like a junkie, they quickly lose strength and can crash and burn.

Among emerging Asian currencies, the Thai baht appears most exposed to global market conditions, most vulnerable to the crash-and-burn scenario. Keep in mind, Thailand was ground zero for the Asian Financial Crisis back in 1997-98. It has history. And history is bound to repeat itself!

As recession digs in across the developed world, demand is swooning. This trend is already being reflected in the price of commodities. Crude oil, specifically, has plunged like a refrigerator off a high-dive. And demand in the developed world is set to taper off even further.

Simply put: Sinking demand is very bad news for the emerging market world, especially Thailand where 70% of their gross domestic product flows from exports.

And if you’re wondering what country is the largest single importer of Thai exports, look no further than the United States. It’s safe to say Thailand is as tied into the global slowdown as anyone.

Estimates had been calling for export growth, in dollar terms, of 15-19% in 2009. But wait – scratch that. The Thai Chamber of Commerce now expects only single-digit export growth next year. Annual export growth collapsed from July to August, falling from 43.9% to 15.5%.

And that’s just the beginning of the story for Thailand…

Instability Bringing Thailand to Its Knees

Until lately Thailand had been suffering from surging inflation and a central bank scared to take action. Annual price growth ran as fast as 9.2% in June.

But since global demand has self-destructed and crude oil prices have sunk considerably in recent months, the inflation rate in Thailand has eased to the 6% range.

Still, that’s not so healthy. But the fact that core inflation is moving down towards more comfortable levels for the central bank means their focus is shifting towards maintaining growth. The impact of the global credit crisis on Thailand’s economy remains to be seen. But it’s no stretch to expect disappointing numbers once the dust settles on this global meltdown.

But falling growth will exacerbate already high political tensions, and vice versa.

Protests between supporters of the previously ousted government and its opponents have already prompted a State of Emergency. It has since been lifted, but the government can only hope the situation doesn’t escalate again.

We just learned that the previous Prime Minister, Thaksin Sinawatra, was sentenced to two years in prison for fraud. What this does is bolster protestors’ attempts to oust the current government, the People Power Party.

If government officials are preoccupied with the growing political crisis, then they will be distracted from mounting economic pressures. And oddly, mounting economic woes have a way of increasing political tensions because people naturally seek scapegoats for their problems.

Needless to say, the thought of yet another change of government is reason enough for foreign investors to flee Thailand. Mix it with a deteriorating export market and you’re shaving at least a percentage point off of GDP, possibly more.

Can you say capital flight? We think it comes soon.

Our sole Thai baht trade has produced 220% gains in about 2 ½ months. We expect many more profitable trades on the baht as the crushing reality of a global recession weighs on the export-dependent currency like a boulder.

Source: Poor Earnings Sends Stocks Tumbling Again…Yet “Unexpected” Strategy Provides Four-Digit Gains Despite Historic Collapse of Global Stock Markets

This means long-term gains for the ISHARES MSCI THAI (NYSE:THD) Thailand index, says Irwin Greenstein writing for Contrarian Profits.

The index is down 21.83 percent over the past six months. But it almost certainly got dragged down with other emerging-market investments thanks to high inflation rates…

Thailand has quietly become a top market for car and truck makers. The country’s inexpensive and talented labor pool gives the majors a gateway into the rapidly growing Asian markets.

In a closed-door meeting, representatives of the U.S. Commercial Service called Thailand the Detroit of the ASEAN Region (the Association of Southeast Asian Nations).

They cited assembling operations for Ford, GM, Toyota, Isuzu, Honda, Nissan, Mitsubishi, BMW, Daimler Chrysler, Mazda and others.    

Nissan invested more than $190 million in two local assemblers to up its stake from 25% to 75%. Nissan CEO Carlos Ghosn told BusinessWeek magazine: “Thailand offers a great opportunity for Nissan. There’s potential for growth, and it’s an excellent base for us to expand our presence in the region.”

Another Japanese giant, Toyota, has committed at least $750 million to build a research and development center and boost its manufacturing capacity to 350,000 cars a year from 260,000.  Ford is well into a $500-million expansion of the local factories of Ford and its affiliate, Mazda.

Honda and Mitsubishi have also moved ahead with new investments in the country. Naturally, parts major makers are also flocking to Thailand. Visteon, Delphi and Denso are reaping the same benefits as the big car and truck manufacturers.

Thailand’s success signals a new world order in the vehicle market. The question you need to ask yourself is: Am I an old-world investor or a new world investor?

Fuel and food costs are pushing inflation towards double-digit levels. The central bank is behind the curve in tightening monetary policy, and it doesn’t look like it will catch up anytime soon.

All this makes the Thai currency, the baht, look very vulnerable, says Jack. Short-selling is the best option in the weeks to come… 

Not long ago, emerging markets were the Cinderella story of growth and newfound prosperity. Now they’re biting and scratching their way through inflation just like the rest of us. But some may not come out alive.
Take Thailand, for example. In April, the Finance Minister raised the country’s inflation target by two full percentage points. Last month fuel prices pushed the cost of food and other important items up 7.6% from just a year ago. That’s a 10-year high.

Not to mention surging consumer spending has officials worried that inflation could hit double digits this year.
In this light, it’s my concern that the Bank of Thailand (BOT) has found itself behind the curve. They did decide to hike their benchmark interest rate by 25 basis points this month, but that won’t be enough.

Thailand’s central bank cut rates five times in the beginning of 2007. And up until this month interest rates remained stagnant.

Needless to say, the BOT has a lot of catching up to do.

Sure, their economy is still moving forward, but the potential for inflation to reach or exceed 10% this year is not comforting. At those levels consumer confidence would surely sink. It would also be tough for Thailand to maintain economic stability and global market competitiveness.

It makes sense to expect the BOT to stay behind the inflation curve for a while. If that’s the case, growth would surely hit the brakes, or at least apply some pressure. With that in mind, the Thai baht is very vulnerable. That means short-selling could be the order of the day in the weeks to come.

Source: The Magic Is Gone for This Cinderella Story

Last week we were up 9.3%. It looks like the world markets have gone completely bi-polar. That’s what happens when sentiment overtakes logic in an electronic web of global markets.

Key
ALL ORDINARIES IDX (ASX: ^AORD) Australia
BSE SENSEX (Bombay: ^BSESN) India
IBOVESPA SAO PAULO (^BVSP) Brazil
EGYPT CMA GENL INDX (Cairo: ^CCSI) Egypt
HANG SENG INDEX (HKSE: ^HSI) Hong Kong
COMPOSITE INDEX (Jakarta: ^JKSE) Jakarta
COMPOSITE INDEX (Kuala Lumpur: ^KLSE) Kuala Lumpar
KOSPI Composite Index (KSE: ^KS11) South Korea
MERVAL BUENOS AIRES (Buenos Aires: ^MERV) Argentina
IPC (Mexico: ^MXX) Mexico
NZX 50 INDEX GROSS (NZSE: ^NZ50) New Zealand
IGBM (Madrid: ^SMSI) Spain
TEL-AV TASE-100 IND (^TA100) Israel
TSEC weighted index (Taiwan: ^TWII) Taiwan
SSE Composite Index (Shanghai: 000001.SS) Shanghai
iShares MSCI South Africa Index (EZA) South Africa
RTSI INDEX (RUS: RTS.RS) Russia
ISHARES MSCI THAILAN (NYSEArca: THD) Thailand
iShares MSCI Turkey Invest Mkt Index (TUR) Turkey

For you true believers, all I can say is that it’s time to double down. For cynics, skeptics and scaredy cats…well you know what you have to do.

Personally, I’m of the opinion that things will get worse before they get better. For how long, I can’t really say. However, I’d love to hear your thoughts. Feel free to post a comment. We look forward to hearing from you.

Have yourself a great weekend. I think some grilled burgers and couple of beers sound good right now.

Source: Taipan Emerging Market Index Drops 59%

Today, though, I’m going to talk about another beneficiary of the commodity boom… one you’ve probably never considered a commodity play: Thailand.

For starters, Thailand has large reserves of iron ore and rubber. China’s construction and automobile industry have driven the price of these two commodities through the roof in the past several years.

Thailand is also the world’s largest exporter of rice, responsible for 26% of all rice exports. Rice has tripled in price in the last four years. It climbed 175% in the first five months of 2008.

This is part of the reason Thai stocks have done so well lately. The Datastream Thailand Index has climbed 23.7% in the last year.

However, despite their recent gains, Thai stocks are still well below the all-time high they reached in 1996, more than 12 years ago.

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Out of all the countries effected by the 1997 Asian Financial Crisis, Thailand is the only one that hasn’t fully recovered. Take a look:

As you can see, Thai stocks soared in the ’80s and early ’90s. At the time, Thailand was a “tiger” economy, growing by more than 9% per year. However, by 1997, the economy became overheated, and the Asian Financial Crisis began…

So, is Thailand a good investment today?

From a trend standpoint, Thailand looks great. Thai stocks have steadily appreciated since 2002.

Thailand is also moderately free. It’s the 54th freest country in the world (out of 157), according to the Heritage Foundation’s Index of economic freedom. This is a measure of how much government control businesses face in a country.

However, Thailand has had some trouble lately…

Two and a half years ago, Thailand’s president was ousted while addressing the U.N. in New York. Coups are never good for business, although this one was bloodless and generally supported by the people.

However, the new military-imposed government started off on the wrong foot. It installed controls on foreign capital, which immediately sent the Thai stock market into a tailspin. Fortunately, these restrictions were partially lifted, and the stock market has since recovered (aided by the commodity boom).

Finally, Thailand is relatively cheap. Its price-to-earnings ratio (P/E) is 11.4, 12.3% below its median level of 13 (the U.S. market carries a P/E of about 21).

You’ll need specialized knowledge (and a specialized broker) if you want to buy individual Thai stocks. There are also three Thai ETFs. You can investigate them at www.etfconnect.com. Type “Thai” or “Thailand” into the search box on the top right-hand corner of the web page.

Asia’s phenomenal growth will eventually produce a new bull market in the region’s stocks. If you’re looking for a unique way to play it, keep this commodity producer on your radar.

Good investing,

Ian Davis

Source: A Small Asian Commodity Play Your Broker Won’t Mention