THAI INVESTORS CONTINUE TO CHASE FOREIGN FUNDS ______

Blog / 09 Nov 2021

Leo Chen, Managing Director - Head of Asia, Calastone

The demand for foreign investment funds in Thailand shows few signs of abating, as investors continue to build their exposure to overseas markets that are starting to recover from COVID-19, as well as sectors that have been a beneficiary of the pandemic. Thai asset managers could no doubt be positioning themselves for this growing demand.

FOREIGN FUNDS HIT 1 TRILLION BAHT

Thai assets in foreign investment funds, excluding fixed income funds, hit 1.1 trillion Baht[1] (equivalent to 30 billion US dollars) at the end of June, according to Morningstar. This is about 75% higher than one year ago, where foreign investment funds were valued at 627 billion Baht.[2]

Foreign equity funds, which make up about three-quarters of all foreign investment funds in Thailand, rose nearly 40% in the first six months of the year.

Chinese equity funds attracted the most demand from Thai investors, where the value of those funds jumped 61.3%[3] over the same period. These funds recorded net inflows of 77 billion Baht, although the pace of inflows slowed in the second quarter, according to Morningstar.

The news should come as little surprise: although China is trying to contain the Delta variant of the coronavirus, the country overall still managed to return to economic growth in the second half of 2020 and resume its supply chains. However, we wonder whether this level of interest in China-themed funds can be sustained over the next 12 months. Beijing announced a ban on cryptocurrency trading and mining in September, while economic growth slowed in the third quarter[4] amid energy shortages and the debt crisis surrounding property developer China Evergrande.

Global equity funds were also in demand, attracting about 51 billion Baht in net inflow from Thai investors in the six months to 30 June 2021. Global technology and global health care funds were also popular. We are curious to know if Thai investors are attracted to these sectors purely because they are broadly perceived to beneficiaries of the pandemic, or if there are other drivers.

Elsewhere, the total value of foreign investment into feeder funds rose by almost one-third in the six months to 30 June, hitting 770 billion Baht. JP Morgan Asset Management leads the feeder fund market in Thailand, with Blackrock and Pimco rounding out the top three.

In total, Thailand’s fund industry expanded 4.8% in the first six months of the year, with foreign investment funds comprising a greater share of that growth. As we wrote in July[5], having access to a range of international fund managers via the Calastone network will create a more robust funds industry in Thailand. This points to a stable, maturing capital market, which will then draw in international investors and take the country to the next step in its economic development.

EXPANDING REGIONAL TIES

Elsewhere, Thailand continues to work on regional initiatives to broaden local asset managers’ access to foreign investors.

In June this year, the Hong Kong-Thailand Mutual Recognition of Funds (MRF) scheme became effective[6].  Under the scheme, Thai funds that are authorised for retail distribution in the local market can be distributed in Hong Kong through a streamlined process (and vice versa).

Another similar but multilateral framework, known as the ASEAN Collective Investment Scheme (CIS), continues to expand[7]. Although it was established seven years ago, the Philippines recently joined as the fourth signatory in May. As one of the founding members, Thailand’s Securities and Exchange Commission (SEC) and market regulators from Malaysia and Singapore, say it continues to pursue more members from the region. Improving the trading infrastructure, expanding the investor base and hence, increasing liquidity should bode well for Thailand’s capital markets in the longer term.

THE NEED FOR CONNECTIVITY IN THAILAND

While it is promising to see Thailand’s involvement across these initiatives, these frameworks may be challenged by the differentiating tax treatments and macroeconomic climate of each signatory.

So, harmonizing and growing these regional initiatives will take time if the counterpart framework in Europe (UCITS) is anything to go by. It’s imperative for Thai asset managers to establish robust and cost effective connectivity to speed up the fund trading process today and access international distributors all with a single connection.

Doing so now would not only capture Thai investors’ demand for foreign investment funds, but it will also have payoffs later, as Thai funds begin to be readily distributed across more markets through the regional schemes – and thus attract overseas investors who have a more bullish view on the Southeast Asian country.

 

[1] https://fundselectorasia.com/fifs-boost-thai-fund-industry/

[2] https://fundselectorasia.com/thai-investors-remain-cautious/

[3] https://fundselectorasia.com/fifs-boost-thai-fund-industry/

[4] https://www.reuters.com/world/china/china-q3-gdp-growth-hits-1-year-low-raising-heat-policymakers-2021-10-17/

[5] https://www.calastone.com/insights/driving-growth-in-thailands-capital-markets/

[6] https://www.charltonslaw.com/implementation-of-hong-kong-thailand-mutual-recognition-of-funds-scheme/

[7] https://www.sec.or.th/EN/Pages/News_Detail.aspx?SECID=8951&NewsNo=92&NewsYear=2021&Lang=EN

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