Foreign investors play an important role in the Thai capital markets, and their participation is highly valued. But their involvement is conditional due to restrictions on foreign investment. While these limits are likely to remain in place, the authorities in the country are making efforts to attract non-local money to the markets.
Routes To The Market
Foreign investors are free to participate in the stock market, and they can import funds for their investments on the exchange without restriction. Some steps must be taken, but they are routine and not considered onerous. To invest, foreigners must appoint custodians, correspondent banks and brokers to act on their behalf. Local commercial banks provide both custodial services and act as correspondent banks. To repatriate proceeds of a sale, investors must show evidence of the stock or bond sale. Foreign investors are charged the same fees and charges as local investors.
International investors may buy shares in a number of ways. They can purchase so-called F shares up to the foreign investment limit of a given stock. This stock is the same as local stock but is only available until the threshold is hit. Once that limit has been reached, F shares are often still available but at a premium. All shares on the exchange have a foreign ownership limit. In most cases, this ceiling is 49%. However, the maximum is lower for banking and finance at 25%.
Foreigners can also participate through the Thai Trust Fund. The fund, which was founded in 1996 with registered capital of BT100m ($3m), is an open-ended fund with Thai nationality. Non-locals can buy units that represent underlying shares and receive all benefits other than voting rights.
The main way to buy Thai shares is by purchasing non-voting depository receipts (NVDR). These allow foreigners to gain an interest in a restricted local company and receive all the benefits of the shares, including dividends, but have no voting rights. NVDRs trade at the same price as the underlying local shares.
The NVDRs are issued by Thai NVDR Company, which is wholly owned by the Stock Exchange of Thailand (SET). All investors can trade in NVDRs, including locals, and they can be traded the through brokers in the same way as regular shares. Reporting of significant shareholdings, such as the 5% threshold, must be made to the NVDR Company.
Arguments For Easing
Some observers have commented that the workarounds should be scrapped and instead the authorities should look into revising the Foreign Business Act, which limits foreign ownership. They say that the market has objections to the use of the NVDRs and that easing foreign ownership regulations would attract more foreign investors. However, major changes are not likely as in recent years the government has focused more on enforcing foreign investment limits and has sought to close loopholes.
Foreigners are very active players in the market despite these restrictions. In the year to March 11, 2016, foreign investors accounted for 25.44% of the buys and 25.07% of the sells in value terms. On a net basis, foreign investors purchased BT8.2bn ($246.8m) of equity through that period, though for a number of years they have been net sellers.
In 2015 foreign investors were net buyers of shares in only four months – March, April, May and October – and overall they were net sellers. For the year, they unloaded a total of BT156bn ($4.7bn) in SET stock. The last full year of net inflows was 2012. February 2016 was also in positive territory, but only at a total of BT491m ($14.8m).
“Last year was bad for the stock market in terms of capital outflows,” said Kasem Prunratanmala, head of research at CIMB Securities. He notes that just as the country was stabilising politically following the coup, it hit headwinds as a result of global economic instability alongside the possibility of rising interest rates in the US.
The government is seeking to boost the economy and hopes that these efforts will result in more foreign inflows. In November 2015 it announced a reduction in property transfer fees and mortgage registration fees, while also announcing a BT136bn ($4.1bn) stimulus programme aimed at villages and rural areas.
The measures taken under the stimulus programme include soft loans via village funds worth a total of BT60bn ($1.8bn) and a budget of BT36bn ($1.1bn) for sub-districts, Wisut Srisuphan, the deputy finance minister, told local media. The government will also speed up spending on small projects with BT40bn ($1.2bn).
In addition, in September 2015 the government announced plans to fast-track five major infrastructure projects – three mass rapid transit lines planned in Bangkok and two waste-to-energy power plants to be built in the Nonthaburi and Nakhon Ratchasima provinces – with total investment of around BT200bn ($6bn). According to local media reports at the time of announcement, private companies will be invited to participate in public-partnerships to undertake these projects.
Sathit Limpongpan, then chairman of the SET, told Bloomberg in 2015 that these efforts were in part designed to encourage foreign investors to return to the Thai market.
A New Infrastructure Fund
In December 2015, the Thai Cabinet approved the formation of a BT100bn ($3bn) infrastructure fund. The fund will be known as the Thai Future Fund, and it will be in part funded by the government and in part by private investors. Units in the fund will be made available for purchase, and foreign investors will be able to participate.
It is expected that the fund will be formed in 2016. Foreign institutions are a particular target for the fund, with investors from countries including China, Japan and India expected to be particularly interested, as they are looking for exposure to Asian infrastructure.
The efforts being undertaken by the government have generally been praised by analysts. They are especially positive on programmes that boost the lower end of the economy. In recent years the poor, the rural and the small and medium-sized enterprise sector have not been doing well, and as a result overall spending has been weak. Thailand’s consumer confidence index hit a 14-month low in July 2015. Analysts warn that government initiatives will take time to have an effect and are not seen as helping the economy in the near term.
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