Driving growth in Thailand’s capital markets ______

/ 09 Jul 2021

Carlo Minieri, Managing Director, Business Development, Asia

Expanding the funds universe and encouraging more international investor participation can play a major role in cementing the next stage of growth for Thailand’s capital markets.

In a study produced with the World Federation of Exchanges, consultants Oliver Wyman stressed the importance of increasing the pool of securities and associated financial products in broadening a market’s investor base – and so boosting liquidity.

That in turn helps build a marketplace that supports economic development. International investor interest can also cut government borrowing costs and open up new pathways for private sector funding.

The Wyman study also pointed to the importance of mechanisms that reduce cost and simplify access for retail investors. There are many factors at play. But improving the electronic trading infrastructure to cut the costs of existing processes – and reducing the cost of ownership – can be a prime mover in boosting both domestic and international investor interest.

Having an attractive pricing structure in place can also help Thai asset managers distribute their funds both regionally and to other international managers.

An evolving market

The Thai authorities have made major strides in liberalising the market. The Asia Region Funds Passport opens the way to mutual recognition of Australian, New Zealand, Japanese, South Korean and Thai funds. More foreign funds are likely to be set up and the introduction of direct distribution for qualified investors also paves the way for more international managers to market locally.

Despite a brief setback in 2020, the value of the Thai funds market – including foreign investment funds (FIFs) – has very nearly trebled in size over the past decade.

Mutual funds have an important role to play in meeting the needs of an ageing population. Provident funds, Thailand’s pension schemes, are set to become a major force in the investment universe in coming years. They are already big buyers of investment funds.

Opening up to the world

All these factors point to a market that is rapidly maturing. That is reinforced by a slow but perceptible shift towards a more open-architecture marketplace as banks and other distributors look to extend the range of options available to their investors.

But, part of the process also has to be improved connectivity to the global funds market – both to help Thai asset managers position their funds with international investors and to help local distributors expand their range of offerings.

This is where Calastone is helping to drive growth. As the largest global funds network, we connect 2,600 fund firms in 47 countries. And we are helping the industry automate and digitalise – reducing frictional costs while lowering operational risk – giving it the opportunity to deliver greater value back to end-investors. Our aim is to work with the CSD to deliver a cost-effective solution that works for all parties in the funds markets and encourages further inflows into the Thai market.

Convenience, cost control, transparency

For looking to combine convenience with good cost control, an unbundled solution is normally optimal. With Calastone, asset managers can connect to the leading global funds network – all through a single connection – without having to change their existing custody arrangements and partners or having to use additional intermediaries, such as sub-custodians.

This cuts costs and improves control and transparency. Asset managers can keep assets in any account name.

Big upside for distributors too

For distributors, Calastone provides a single conduit to all and any local or international fund managers the firm chooses to partner with, giving firms access to the largest funds range possible. We connect firms instantly to all their trading counterparties around the world.

Importantly, transaction fees are paid by the order receiver, not the order sender. This eliminates a major area of cost for distributors and reduces the cost of ownership for investors.

The breadth of Calastone’s global funds network is also a major plus for distributors looking towards an open-architecture model. The rapid growth in FIFs, which now make up more than a fifth of Thailand’s mutual fund market, is testament to a growing appetite among local investors for overseas exposure.

Strengthening Thailand’s capital market

International investors view the Calastone network as a secure and trusted way to connect with fund managers and distributors around the world. For many, it is their preferred conduit for gaining local market exposures.

Offering multiple electronic routes to market is an important step on the maturity ladder for a market. More direct-to-market strategies improve a market’s attractiveness to investors by reducing the cost of access.

Attracting more long-term investment is one of the keys to strengthening a capital market. That, in turn, can bolster stability, reduce a market’s vulnerability to external shocks and help fund development. Calastone’s unrivalled network linking global fund firms can play a major role in supporting those goals.

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