You may be right as the NAV could rise and shrink the premium that way (or the price could go up too w/o shrinking the premium) but the direction of the Thai market is hard to call. My beef is mainly with the premium.
I do think the premium will shrink back to zero eventually. For TTF it was near zero in late 1996. Hedging with the Thai International Fund (see post #17) makes sense to me (i.e., short TTF, long Thai Int). If the premiums don't converge it's a waste of time and a tie-up of capital. But if the premium on the U.S. based Thai fund (say 45%) goes back to zero and the Thai International Fund's discount stays in the 20% area then there's a decent return of about 45% to be made in X months. Or, the premium on the Thai International Fund could go to 45% while TTF's premium stays at 45% - you still make money in this case. As long as the premiums converge, you make money for equal dollar exposures to the two funds.
How big is X? I guess 6 months. If X is 60 months, then this becomes a low return trade for a 45% profit, 9% per year. Also, if the difference in premiums widens instead of narrowing, you lose money. But I don't expect the latter to happen since as I said before, I expect the market to become more rational in pricing these funds, not more irrational - that's the wager I'm making. I believe the potential profit in this hedged position is much greater than the potential loss and that the probability of profit is higher than the chance of loss, which together makes for a high expected return.
Regards,
John |
