I guessed wrong under post #62 as to how NAV is computed. Morgan Stanley left a message on my answering machine with the same message you have: foreign shares valued at foreign price and local at local price. Since you can't arbitrage between the two classes, holders/ funds with local shares can't sell at the higher foreign prices. The same principal applies to TTF.
You're definitely on to something here...something that none of the closed end fund analysts quoted in the press have mentioned. I've had to rethink everything.
I don't know where to obtain comprehensive quotes for Thai or Malaysia shares but from the WSJ interactive edition they did show quotes for Thai stocks that had both foreign and local quotes (of which 6 are held by TTF). The average premium of foreign over local for these 6 is huge -> 73%. (WSJ didn't show the two classes for Malaysian stocks) This might justify part of the current 122% premium to NAV on the Thai fund if the 73% is about right for all of TTF's holdings (73% is probably too high though because some of the fund's holdings are foreign shares).
The key issue is whether the premium of foreign to local shares is justified. Capital controls and the liquidity problems being experienced in Thailand are likely the reasons for local shares being cheaper. If you think that the price of local shares will rise to meet the foreign, then the premium is justified. Foreign investors could be better at pricing the stocks than the liquidity constrained local investors. Also, if foreign ownership restrictions are lifted then my guess is that the oodles of foreign capital looking for a home, and trying to diversify out of the US market by getting into the small emerging markets would drive up the local prices to equal the foreign shares. So I think maybe half of the 122% premium is justified. That still leaves the other half of the premium but shorting TTF certainly is not as lucrative as it seemed before you raised this new information.
Does anyone know how Siam Selective Growth computes its NAV and whether it owns predominantly local or foreign shares? If it computes NAV the same way as TTF and if it has mostly local shares then it is still a good long hedge against a TTF short - i.e. a saner market would eventually price the two funds at similar premiums/ discounts. If SSG mainly holds foreign class shares, however, then it's not as good a hedge as the difference in premiums between it and TTF would suggest.
I've already seen half my paper profit on TTF disappear over the past month. The economic news out of Thailand is becoming more positive as reforms proceed (e.g., relaxation of currency controls yesterday, current account surpluses, etc) even though the economy will go through some tough times ahead. Markets are of course forward looking and discount future improvement. Now I'm becoming less convinced of further gains from being short and don't want to see further profit erosion. TTF's price could stand still and the NAV gradually increase as the market recovers and baht rises or worse yet, TTF could continue rising. I'm thinking of covering my short position next week. This means I will be going long on Thailand because of my holding in SSG. A MAJOR CHANGE IN STRATEGY. Anyone have any opinions? (Reed will probably agree.)
John |
