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Is Thailand Worth Investing In?

When talking about One Belt One Road and the financial development of Southeast Asian countries, the first country that comes to mind for most may be Singapore. However, the daily turnover of the Thai stock market has overtaken Singapore’s. This shows that Thailand is not just a place for tourism, but for investment as well.

YoY GDP Growth (%) YoY Net Profit Growth of ListCo (%)
2014 2015 2016 1Q2017 2014 2015 2016 1Q2017
Thailand 0.7 2.8 3.2 3.3 -11 -1 26 28
Indonesia 5 4.8 5 5 10 -4 36 30
Philippines 6.1 6 6.9 6.4 5 -1 13 -5
Malaysia 5.8 5 4.2 5.6 3 -7 -14 17
Singapore 2.1 2 2 2.5 -10 -14 -1 -5

Source: Stock Exchange of Thailand, Bloomberg

When investing overseas, any investor will naturally assess the stability of economic growth in the country. According to the International Monetary Fund, Thailand’s economic growth this year is about 3.3%, with future growth expected to be around 3% due to increase in government infrastructure spending and domestic consumption. Since the 1997 financial crisis, Thailand’s foreign exchange reserves has reached a healthy level, while public debt is also less than 60% of GDP.

Stock market performance of regional peers

As compared to some of her regional peers in Southeast Asia (including Indonesia, Philippines, Malaysia and Singapore), Thailand’s economic growth has not been particularly spectacular. However, net profit of Thai listed companies hit 26% last year, second only to Indonesia. Excluding Japan, the Thai stock market index was the best performing index in Asia from 2012 to 2016. While the Thai stock markets’ forward PER is slightly higher than that of the Hang Seng Index (See figure 1), it is not considered very high, with weekly dividend yields similar to Hong Kong’s (See figure 2).

Figure 1 (Source: Bloomberg)

Figure 2 (Source: Bloomberg)

From 2013 to 1Q2017, the amount raised from IPOs in Southeast Asia was about USD 16.47b (See figure 3). Although not as much as Hong Kong (USD25b in Hong Kong), it is 1.7 times that of Singapore’s. Although Thailand’s total market capitalization is less than that of Singapore, the number of companies with market capitalization of more than USD1b and average daily turnover of USD10m stands at 28 in Thailand, compared to 24 in Singapore. In addition, the trading volume of in SET is higher than that of SGX by nearly 20%.

Figure 3 (Source: Stock Exchange of Thailand)

At the start of the month, the China Council for the Promotion of International Trade (CCPIT) Shenzhen hosted the Securities Market Forum, which was attended by Dr Santi Kiranand, senior executive vice president of SET. Dr Santi is mainly responsible for new listings and management of listed companies. He hopes that through this visit, he is able to better everyone’s understanding of the Thai stock market.

When asked why there are so few Hong Kong-listed Thai companies, Dr Santi explained that Thai companies prefer to list locally, and dual listing is uncommon as well. Elaborating on the attractiveness of the Thai market, Dr Santi explained how there is a balanced combination of investor groups, “In 2013, retail investors comprised about 57% of all investors. Now, the investor sphere is split equally among the retail and institutional investors. Also, among the institutional investors, about half of them are overseas investors. Hence, it can be said that the composition of investor groups in Thailand is quite uniform”. He added that the Thai market is different from the Singapore and Malaysia market, where institutional investors comprise 80% of total investors.

Index-linked products still require expansion

On SET’s expansion, Dr Santi believes it requires high supply and demand for it to proceed. On the supply side, more investment products have to be offered. There are currently over 660 listed companies and 2,000 traded financial products. Dr Santi is looking to open the SET to foreign companies to list in Thailand, “We expect at least 1 foreign company to be listed this year and this figure will gradually increase in future”.

In addition, the SET currently has options, futures and other financial products to allow investors to perform hedging. However, Dr Santi admitted that there are few ETFs and other index-linked products, and trading volume of such products are low. He added that they are looking to develop more ETFs.

On the demand side, Dr Santi said that this visit to Shenzhen is part of SET’s overseas roadshow, and he wishes to increase Thailand’s recognition among investors. He said, “Some people may worry about Thailand’s stock market infrastructure. However, the SET has invested a huge amount of funds to develop related technologies. We are definitely in line with international standards”. He also raised an example of how SET is currently T+3 and is set to implement T+2 in March next year, to prove SET’s determination in international expansion.

Strengthen supervision and protection of investors

In response to being asked if he had any advice for foreign investors, Dr Santi said that he believes investors should consider the risks and returns of their investments, be it in a developed or developing market. He also said that SET is trying to balance these two elements, “The Securities and Exchange Commission Thailand is known to be very strict. For example, we require all listed companies to publish quarterly results to ensure high transparency. Currently, the SET has 14 companies listed in the Dow Jones Sustainability Index (DJSI), affirming out strong corporate governance”.

Of course, when investing overseas, one not only has to pay attention to share price trends, but FX rates as well. He added on, “Currently, the SET trades in Thai Baht. However, the Thai Central Bank is researching on possibilities to include other currencies”.

Reporters also asked SET if it would consider cross-border co-operations, including “Hong Kong-Thai” and “Shanghai-Thai” partnerships. Dr Santi stressed that the SET is open to cooperation, citing that the SET has previously considered the feasibility of an ASEAN cooperation, which unfortunately failed to succeed.

Finally, Dr Santi conclude that the SET will improve the quality and quantity of supply and demand, so that the SET will expand healthily. Also, by maintaining the quality of Thai listed companies, cooperation between them and overseas company will be much smoother.

Cap1 Financial’s (ASEAN’s leading corporate finance firm) Director, Yuanita Tjia, said that although statistically, M&A activity by Thai companies has not grown significantly, there is however more cooperation with overseas companies through partnerships. “We see that the CMLVT (Cambodia, Myanmar, Laos, Vietnam, Thailand) region is still young with high growth potential, with domestic consumption growing at a fast pace, therefore attracting a lot of overseas investment”.

“Looking at overall investment opportunities in ASEAN, Singapore is a mature market will little room for growth. In addition, local investors are generally conservative who are focused on dividend yields. Hence, the stock market returns are not high. The Malaysian market faces the problem of high exchange rate volatility, while the Indonesia market lacks transparency. With One Belt One Road in mind, Thailand is China’s entry point into ASEAN, and coupled with the government’s high infrastructure investment, Thailand’s young market and increasing consumption, I am more optimistic about the Thai market, where liquidity is higher and exchange rates are more stable, leading to reduced investment risks”.

Choose consumer stocks to see global competitiveness

She also believes that the balanced composition of Thailand’s investors mentioned by the SET is an advantage, “Individual investors have a short-term investment horizon whereas institutional investors have longer term investment horizons. If there are too many retail investors, the market will be very volatile. If there are more institutional investors, the market will not be volatile enough”. Ms Tjia also added, investors in the Thai stock market are mainly local investors, which lowers the impact of ‘hot money’ flow in and out of Thailand.

“For the average investor who is not familiar with the Thai market, although ETF liquidity is not very high, it should not have too much of an impact. If you are looking for high potential stocks, I think the infrastructure and consumer stocks are the best choices”.

In terms of consumer stocks, she is particularly bullish on beauty products, “last year, private consumption accounted for about 52% of Thailand’s GDP, of which Thailand’s beauty products were comparable to South Korea’s. As education among Thailand’s younger generation increases, so does their spending, including spending on beauty products. In addition, Thailand’s Snail White cream has even penetrated the international market. Similarly, Thailand’s F&B is also highly attractive, with many internationally renowned newly listed companies.”

When asked why there are so few Hong Kong-listed Thai companies, Dr Santi explained that Thai companies prefer to list locally, and dual listing is uncommon as well. Elaborating on the attractiveness of the Thai market, Dr Santi explained how there is a balanced combination of investor groups, “In 2013, retail investors comprised about 57% of all investors. Now, the investor sphere is split equally among the retail and institutional investors. Also, among the institutional investors, about half of them are overseas investors. Hence, it can be said that the composition of investor groups in Thailand is quite uniform”. He added that the Thai market is different from the Singapore and Malaysia market, where institutional investors comprise 80% of total investors.

Index-linked products still require expansion

On SET’s expansion, Dr Santi believes it requires high supply and demand for it to proceed. On the supply side, more investment products have to be offered. There are currently over 660 listed companies and 2,000 traded financial products. Dr Santi is looking to open the SET to foreign companies to list in Thailand, “We expect at least 1 foreign company to be listed this year and this figure will gradually increase in future”.

In addition, the SET currently has options, futures and other financial products to allow investors to perform hedging. However, Dr Santi admitted that there are few ETFs and other index-linked products, and trading volume of such products are low. He added that they are looking to develop more ETFs.

On the demand side, Dr Santi said that this visit to Shenzhen is part of SET’s overseas roadshow, and he wishes to increase Thailand’s recognition among investors. He said, “Some people may worry about Thailand’s stock market infrastructure. However, the SET has invested a huge amount of funds to develop related technologies. We are definitely in line with international standards”. He also raised an example of how SET is currently T+3 and is set to implement T+2 in March next year, to prove SET’s determination in international expansion.

Strengthen supervision and protection of investors

In response to being asked if he had any advice for foreign investors, Dr Santi said that he believes investors should consider the risks and returns of their investments, be it in a developed or developing market. He also said that SET is trying to balance these two elements, “The Securities and Exchange Commission Thailand is known to be very strict. For example, we require all listed companies to publish quarterly results to ensure high transparency. Currently, the SET has 14 companies listed in the Dow Jones Sustainability Index (DJSI), affirming out strong corporate governance”.

Of course, when investing overseas, one not only has to pay attention to share price trends, but FX rates as well. He added on, “Currently, the SET trades in Thai Baht. However, the Thai Central Bank is researching on possibilities to include other currencies”.

Reporters also asked SET if it would consider cross-border co-operations, including “Hong Kong-Thai” and “Shanghai-Thai” partnerships. Dr Santi stressed that the SET is open to cooperation, citing that the SET has previously considered the feasibility of an ASEAN cooperation, which unfortunately failed to succeed.

Finally, Dr Santi conclude that the SET will improve the quality and quantity of supply and demand, so that the SET will expand healthily. Also, by maintaining the quality of Thai listed companies, cooperation between them and overseas company will be much smoother.

Cap1 Financial’s (ASEAN’s leading corporate finance firm) Director, Yuanita Tjia, said that although statistically, M&A activity by Thai companies has not grown significantly, there is however more cooperation with overseas companies through partnerships. “We see that the CMLVT (Cambodia, Myanmar, Laos, Vietnam, Thailand) region is still young with high growth potential, with domestic consumption growing at a fast pace, therefore attracting a lot of overseas investment”.

*Note: This article was adapted and translated from imoney magazine

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