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Strategies & Market Trends : Thai Funds -- Ignore unavailable to you. Want to Upgrade?

To: Heretic who wrote (54)	1/16/1998 1:17:00 AM
From: peter michaelson	Read Replies (1) \| Respond to of 107

Reed - I think this can happen because although the premium has increased as you say, the NAV has fallen more. John's profits would depend upon when he shorted. The premium has quintupled since late June 1997, but the NAV is 25% of what it was then - $11.80 in early July to about $2.96 today. The price has gone from an intra-day high of $20 in early July to a low of $5.25 last week. Personally, I'm getting hurt by this amazing TTF premium, but feel it must be short-lived. In fact, I plan to short some more shares tomorrow. And, yes, they are still available to short (as of last week, anyway).

To: Heretic who wrote (54)	1/17/1998 6:52:00 PM
From: Polartee	Respond to of 107

Reed: A demonstration that it is "Better to be lucky than good." :} The recent increase in premium on TTF, etc. as the Asian markets & currencies rallied is something I didn't expect. I thought that if the Thai market and baht bottomed out (maybe it has) and started rising again, that the premium would diminish since the premium was to some degree anticipation of a rising market and as anticipations were met then investors would pay less of a premium. TTF is now around $8 1/4 in price and at a 150% premium to NAV. NAV has finally started to rise but instead of closing the premium gap, price is rising faster. I guess investors are wagering the market has bottomed and are piling in for the ride higher. But it's way too early for me to conclude that the strategy won't work. If anything, I'm more convinced than ever that the Thai Fund is overpriced. Eventually these markets will stabilize, people will become bored with the funds, and they will trade at a discount to NAV as do 90% of closed end funds. Until that happens the premium could go higher still. Anyway the upward surge of TTF this week prompted me to hedge my position with the Siam Selective Growth Fund (ticker SSG). I bought at 38p on Wednesday on the London Stock Exchange. The commission was nearly 5% of the purchase value! The fund trade at about a 5-7% discount to NAV. This fund invests principally in the smaller to medium sized companies in Thailand according to Trustnet but looking at some of their holdings they seem to have some big names like PTT Exploration and Bangkok Bank. Institutions hold most of the shares in SSG whereas TTF is mainly held by retail. 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. Let me put forth the case to those who may be new to the thread: Short 1000 TTF at 8 1/4 for $8250. Given a 150% premium to NAV (i don't have the actual since the WSJ Interactive Edition screwed up their tables today), the underlying value of Thai stocks held is 8250/(1+1.50)=$3300. We want to buy about $3300 of Thai stock using SSG. Since TTF is supposedly 100% in equities but SSG is 28.6% in US$ cash position, the hedge calculation is 3300/(1-.286)(100%-5% discount to NAV for SSG) = $4391 Convert to pence: $4391.614= 2696 pounds or 269,600 pence. Number of shares of SSG to buy = 269,600/38 = 7094. If the equity component of SSG and TTF are highly correlated, which they should be, then no matter the direction of the market and currency, when TTF again trades at a lower preimum to NAV and assuming SSG doesn't go to a big discount, then the position makes money. If as I hope and expect, the premium on TTF falls to 0% and say equity underlying both funds doubles from here, same then the profit is = Gain on short sale = 8250 - 33002 = 1650 + Gain on SSG = 33002 + cash of 4391-3300 - 4391 purchase cost = 3300. Total profit = 4950. It works out the same if market declines too. Return on capital is hard to figure because you have to put up more margin if the short position moves against you. But return on initial funds required which is 50% of TTF shorted + 100% of non-marginable SSG position then ROC = 4950/(50%*8250+4391) = 58%. As stock market profits go, this is easy money. A risk, however, is that the TTF short position could be called away, or you have to put up more margin if TTF keeps surging. If I've made any calculation errors, I'm sure someone will let me know. Regards, John