|
 From weak to worse
by NUNTAWUN POLKUAMDEE Coming into mid-December, the Thai equity market had looked to end the year with modest gains of around 3% for the year.
With 800 billion baht in value wiped off the market, policymakers made an abrupt, embarrassing U-turn the following day. M.R. Pridiyathorn Devakula, the finance minister and deputy prime minister, acknowledged that authorities had ‘‘underestimated’’ the impact that the new 30% reserve requirement on inflows would have on the equities market, and declared that the rule would be changed to exempt foreign direct investment and equity investments. The policy change helped spur a rebound in the market the following day, and by Dec 22, the SET index had since regained ground to 680.31 points. But analysts warned that repercussions from the flip-flop would be felt well into 2007, and that the policy blunder hardly assuaged investors already nervous about the policy platform — and competence—of the interim government installed following the Sept 19 coup.
The fact that the central bank had neglected to consult either the Securities and Exchange Commission or the SET before implementing the capital controls also spoke volumes about the respect — or lack of it — the new government has for the equities market. Late-year hiccups aside, 2006 passed listlessly for the stock market overall, as the political tensions in the first nine months of the year weighed on investor sentiment and hurt activity in the primary markets. For the first 11 months of the year, daily turnover on the SET averaged just 16.21 billion baht, or slightly below the 16.45 billion baht recorded in 2005.New listings totalled only 12, or one-third the total the market had attracted in 2005 and 2004. Corporate earnings through the first nine months of 2006 totalled 371 billion baht for all listed companies, just 1% higher than the same period last year, although sales rose a robust21%across all sectors. Regulatory reforms Medium-term structural reforms took a step forward in 2006 after the SET and SEC announced a blueprint for liberalisation of the securities sector. Securities licences will be offered freely starting in 2012, market officials
say. Brokerage fees, fixed at a minimum of 0.25% for the past five years, will
begin to decline starting in 2010 and will be made fully negotiable starting
in 2012.
Online trading fees, previously fixed at 0.21%, will drop to 0.15% starting in 2007, a policy that is expected to lead to a sharp boost in internet trading by retail investors. The changes are expected to force consolidation within the industry and press the country’s 39 active brokers, now mostly dependent on brokerage fees for revenues, to diversify into other business lines such as investment banking or proprietary trading.
Securities licences, now separate for individual businesses such as brokerage, underwriting and advisory services, will be consolidated into a single licence for full-service brokers. Smaller, niche players can apply for a boutique service licence that offers a sharply limited scope of allowed operations in exchange for lower capital requirements. Full-service brokers must have minimum paid-up capital of 300 million baht, compared with 100 million for boutique brokers. The SEC Act, the legal framework for the securities market, will also be amended to strengthen the independence of the SEC. Commissioners will no longer be only top bureaucrats, but will be instead independent appointees who will have to be vetted by Parliament. M.R. Pridiyathorn said the intent of the reforms was to ensure the independence of the SEC and the capital market from political interference as well as set a clear deadline for full market liberalisation of the securities sector. The independence and credibility of the SEC were strained in 2006 over its role in investigating possible wrongdoing in the takeover of Shin Corp by Singapore’s Temasek Holdings. While Panthongtae Shinawatra, the son of the former prime minister, was eventually fined six million baht for disclosure violations related to his offshore shareholdings, critics blasted the SEC for ignoring other irregularities relating to the Shinawatra family’s shareholding structure of Shin and other listed firms. At the SET, meanwhile, a new leader arrived in 2006 when Patareeya Benjapolchai took over as president from Kittiratt Na-Ranong. The SET also announced a five-year development plan aimed at boosting the country’s investor baseto10million accounts, an ambitious target considering that only around 200,000 accounts actively trade today. Market capitalisation, now5.5 trillion baht, is expected to rise to match the size of the economy within three years. The SET also hopes to attract 40 new listings in 2007, increasing market capitalisation by another 120 billion baht. Its small sibling, the Market for Alternative Investment, is seeking 20 new listings, with capitalisation expected to rise to between 25 billion and 30 billion baht from 15 billion in late 2006. Analysts said 2007 should also be an active year for the Thailand Futures Exchange, which plans to introduce interest rate futures to complement the existing SET50 index options now available in the market. Trading volume on the TFEX is projected to rise to around 5,000 contracts per day in 2007, compared to around 1,500 to 2,000 per day in late 2006. Heading for the exits UMESH PANDEY
‘‘Our confidence in the country has been shaken,’’ said Mark Mobius, president of Templeton Emerging Market Fund Inc, which manages $31 billion in assets and has high exposure to markets such as Thailand. Other fund managers took a similar view, saying they would be wary of investing in the Thai market for some time, given the turmoil that resulted when the central bank imposed capital controls and then lifted them for stocks within hours after the equity market collapsed. Although Finance Minister M.R. Pridiyathorn Devakula and Prime Minister Surayud Chulanont say the capital-control measures are necessary to protect the export sector, which accounts for about 60% of the country’s gross domestic product (GDP), fund managers argue that government intervention in market mechanisms is not something that investors like. ‘‘Money is very slippery and likes to go to places that are safe— take Switzerland as an example — but what Thailand did will not go down well with the fund managers,’’ Mr Mobius says. ‘‘As a country, Thailand has the right to do what it feels like but having capital controls will only push investors to seek other markets to invest in,’’ added Brian Hoegee, managing director for Asia of UK-based Global Traders. But these uncertainties also offer opportunities for investors who have the appetite for volatile markets. The 15% droponTuesday,Dec19andthe subsequent11% gain the following day proved to be a golden opportunity for some investors. The moves by the authorities have already caused the Thai baht to depreciate
as they had hoped, therefore offering cheaper valuations on both equities and real-estate assets, in which foreigners can invest without having to place a 30% reserve.
Other fund managers are cautiously optimistic about Thailand’s equity markets despite the uncertainties about the foreign business laws and a possible slowdown in economic activity in the near future. ‘‘Fundamentally, Thailand continues to offer good opportunities and we remain bullish,’’ said Lance Depew, the portfolio manager at Quest Capital (Thailand). Mr Depew, whose firm has $260 million invested in the local equity market, says that moves by the interim government to boost infrastructure spending and to help get the economy back on track after months of uncertainty had helped increase confidence among investors. This, he said, had been among the key reason for the sharp increase in the foreign capital inflows into the equity markets. Foreign investors were net buyers of Thai equities over the first 11 months of 2006. As of mid-December they had been net buyers of more than 86 billion baht worth of stocks on the Stock Exchange of Thailand, although they sold shares worth more than 25 billion on Black Tuesday. Foreign investors, who have accounted for more than a third of the daily turnover on the local bourse, had hailed the end of the political uncertainties that had been caused by the street protests, culminating in the military coup on Sept 19 that ousted the government of Thaksin Shinawatra.
Thailand had been under a caretaker government since the courts voided the April 2 election over allegations of election fraud. Public opposition against Mr Thaksin over his ethics and personal interests also intensified after his family’s 73.3-billion-baht tax-free sale in January of their Shin Corp shares to Singapore’s Temasek Holdings. ‘‘The political situation has improved dramatically and this is positive, and we continue to remain positive about the Thai equity market especially the property sector,’’ said Colin Ng, director and head of Asia equities excluding Japan at UOB Asset Management. However, he acknowledged that the restrictions placed by the Bank of Thailand on fixed- income investments were something that could hurt inflows. The Bank of Thailand placed some restrictions on the inflow of funds into the fixed-income market as an attempt to discourage inflows of hot money that had helped push the Thai currency to near a nine-year high of 35.10 baht to the dollar. Such levels, the central bank maintains, could be very harmful to the export sector. But foreign investors in Thailand have seen a double bonus from the surging baht that gained nearly 15% over the year. ‘‘The movement of the Thai currency has helped us gain and it has been a double benefit for us,’’ said a fund manager in Singapore whose firm has heavy exposure to Thailand. The surging baht, coupled with the positive outlook for economic growth, are likely to help the country attract investments during the coming year. The National Economic and Social Development Board (NESDB) revised its economic growth forecast for 2006 to 5% from 4.5%, saying the economy would benefit from falling fuel prices and strong exports in the year’s final three months. The country has been helped by better than expected exports that were projected to grow by a better-than-expected 16.8% in 2006, up from an earlier projection of 14%. Forecasts for imports fell to 8.3% from 8.8% previously. Falling fuel prices have also helped the country by trimming the inflation rate in 2006 to 4.6%, against 4.7% projected previously. The4.4%growth projection for private investmentand4%for public investment in 2006 remained unchanged. In 2005 private investment grew 11%, and public investment grew 11.4%. The government think-tank said that gross domestic product (GDP) during the third quarter of 2006 rose by 4.7% year-on-year, more slowly than first quarter growth of 6.1% and second quarter growth of 5%. ‘‘We think that the Thai market is fundamentally sound and if there’s a dip in the market, we will take advantage of it and take up more position,’’ said a fund manager based in Singapore whose firm manages $185 billion in assets across the world. ‘‘In Thailand we looked at all of our investments soon after the military coup and continue to feel confident about things there, and therefore we have an overweight position in the country,’’ he added. Fund investors seeking less volatile options KRISSANA PARNSOONTHORN  Investors
were conservative when it came to mutual-fund products in 2006, as many negative
factors pressured sentiment for most of the year.
Among the unfavourable factors affecting the investment climate were economic and political uncertainties, as well as high inflation and the unclear interest-rate direction. The most popular mutual fund products over the past year have been fixed-income funds investing in short-term bonds with durations from three, six and nine months, said Maris Tarab, president of the Association of Investment Management Companies. During the first half of 2006, interest rates went up sharply and nobody knew when the rates would stop rising, so investors opted to put their money in short-term fixed deposits or short-term bond funds. ‘‘Bond funds will continue to dominate the mutual fund market in 2007. As interest rates have already stabilised and are likely to decline soon, investors will try to lock up the high rates and the durations of bond funds will be longer than that of this year,’’ Mr Maris said.
Teera Phutrakul, executive chairman of Finansa Asset Management, said local asset-management firms would move more toward having open distribution platforms. ‘‘This means banks can sell the mutual fund products of any asset management firm and investors will be the persons who decide which products they will buy. It’s like going to a supermarket and buying what you like,’’ he said. Foreign investment funds have also grown substantially over the past 12 months as investors have been looking to diversify investments and lower risks. As well, some asset-management companies designed their FIFs investing in different asset classes such as global commodities, European stocks and stocks in some Asian markets. Property funds are growing significantly as well, as investors have begun to embrace the investment concept and are also attracted by returns as high as 7%, handily beating inflation, which was projected around 4.8% for 2006. Among the new property funds introduced in 2006 were the 7.97-billionbaht Quality Houses Property Fund, the TU Dome Residential Complex Property Fund, the Future Park Property Fund and the Samui Airport Property Fund. In contrast, equity funds have been largely ignored by investors due to
the sluggish and volatile stock market. The Thai stock market was the weakest
performer in Asia with a 2.61% gain as of mid-December—and that was before
the Dec 19 meltdown that followed the introduction of tough capital controls
by the Bank of Thailand. Vana Bulbon, chief executive of UOB Asset Management, said that a more positive market outlook would be driven by economic improvement, with GDP expansion projected at about5%in 2007 and 4-5% in 2008. Growing exports and government spending, mostly on infrastructure projects, will boost domestic consumption, analysts believe. As well, interest rates and inflation are expected to decline while the political situation will become more stable. Robert Penaloza, the deputy CEO of Aberdeen Asset Management, said that foreign capital of at least 100 billion baht was expected to flow into the Thai stock market in the coming year. Prior to the Dec 19 crash, foreigners had been net buyers of Thai shares on the year, as local equity valuations are relatively low with20%discountswhen compared to regional markets, he said. Aberdeen predicted that corporate earnings of listed firms in 2007 would grow by 6-8%, compared with less than 1%growth in 2006, with dividend yields up by at least 5%. |
|||||||||||||
| © Copyright The Post Publishing Public Co., Ltd. 2006 Privacy Policy Comments to: Webmaster Advertising enquiries to: Internet Marketing Printed display ad enquiries to: Display Ads Full contact details: Contact us |
|||||||||||||
