12 Jun

Can Thailand Reignite Its Economy amid the US-China Trade War?

WRITTEN BY Mayur Sontakke, CFA, FRM

Thailand’s demographics

Thailand has been a longtime close ally of the US. The relationship is so close that a 1966 treaty of amity allows companies in both countries to have access to each other’s markets. The 2014 military coup did dent the relationship a bit, but bilateral trade has continued to grow.

Thailand is the fourth-most populous country in the Association of Southeast Asian Nations with a population of 69 million. However, with a median age of 37.8 years and a population growth rate of just 0.18%, the country has one of the oldest workforces in the region. Thailand’s female labor force participation rate was the lowest in decades in 2018. Thus, demographic factors may limit Thailand’s ability to benefit from manufacturing relocation.

Exports and manufacturing capabilities

Thailand is an export-driven country, with exports accounting for 68% of the country’s GDP. Some of Thailand’s and China’s exports—especially office machine parts and integrated circuits—also overlap, which may benefit Thailand.

Manufacturing accounted for 27% of Thailand’s GDP, higher than the world average of 15%. Automobiles, semiconductors, and electronic goods account for a large part of its manufacturing GDP. Thus, Thailand may see some companies setting up factories there if the trade war continues.

Although its strong relationship with the US and some overlap with China’s exports to the US work in Thailand’s favor, the country’s demographics may limit its opportunities.

For investors interested in gaining exposure to Thailand, the iShares MSCI Thailand ETF (THD) is a passive option. The ETF invests in Thai equities and has returned 11.43% so far in 2019.

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