Interview: Pote Harinasuta
How will volatility in global markets impact short-term capital flows to and from Thailand?
POTE HARINASUTA: From a Thai perspective, I would consider 2017 to be a year of externalities, as there are not many major factors that could be affecting the market. Companies have been growing well, exports have picked up, and there is strong government spending on infrastructure projects lined up for the next few years. From a domestic perspective things are on the right track, so any risk would come from external factors. Among the key factors are the US Federal Reserve interest rate hikes, as we foresee a few hikes a year for the next two to three years. Every time there are talks of rate increases, markets tend to become more volatile, and money begins flowing back into the US. As a result, emerging markets do not perform as well, and theoretically, when rates go up, money flows to higher yielding returns. The Bank of Thailand has an inflation targeting policy, so as long as it does not hit any serious level, the consensus is that a reciprocal interest rate hike will not occur here, and that we will see the next hike perhaps only by the first quarter next year. Other factors which could impact capital flows include US policies on immigration, energy, taxes, infrastructure and trade, as well as European political elections and Brexit.
What challenges exist for Thai asset managers looking to launch funds overseas, and how can regulations and processes be eased?
POTE: The ASEAN Collective Investment Scheme, was created as a gateway for ASEAN countries to forge regional connectivity by listing and launching funds on countries in the bloc. This is what the various regional stock exchanges have been aiming for over the past few years. In practice, however, many challenges exist. Our listing of the One Stoxx ASEAN Select Dividend Index Fund was the first time a Thai company launched a fund in ASEAN, and we chose the Singapore Exchange due to its status as a regional hub, as well as its tradability and liquidity. It took two years to launch this fund, after setting it up in Thailand, for several reasons including filing, obtaining approval and using a legal advisor as the go-between in the filing process with the Monetary Authority of Singapore, and planning in general. We would like to see more support from Thai regulators in providing a regional filing standard, seed money (from big local government-related players or other regional players), and connections to finding partners and cost-efficient legal advisor(s). It would be a positive step for the regulators to help coordinate these processes, enabling the sector to expand.
To what extent can market players stimulate the risk appetite of Thai investors, and which funds are experiencing growth in demand?
POTE: If you look at the percentage of Thai investors investing in mutual funds compared to the deposit base, the figure is less than 50%. This same figure is roughly 80% in Malaysia and 90% in the US and India. Thai investors are predominantly invested in relatively “safe” fixed income products, illustrating they are not aware of inflation risk, and typically still put their money into the deposit base. Much of the mutual fund investment itself is in fixed income as well. Mutual funds in Thailand have the advantage of not taxing investors on fixed-income product returns – something which could change in the near future – so at least you can level with inflation. However, out of BT4.8trn ($135.2bn) worth of mutual funds in Thailand, BT2.6trn are fixed income ($45.1bn) and BT1trn ($28.2bn) are equity. The rest are balanced funds, property funds and infrastructure funds, and real estate investment trusts (REITs). Going forward, there needs to be continuing education for public investors to show the need to reduce inflation “risk” and attain asset allocation. REITs, property funds and infrastructure funds are all experiencing high demand. Due to the limitation of Thai products, foreign fixed-income funds have also attracted major investment.
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