Thinking Global: Next Steps for Thailand’s Fund Industry as Investors Seek Foreign Exposure______

Leo Chen, Managing Director - Head of Asia, Calastone

Appetite for foreign investment funds among Thai investors has been on an upward spiral for several years. According to Thailand Securities & Exchange Commission (SEC), local brokers’ revenue from global stock trading ballooned 200% in the first half of 2021, driven by surging demand for Southeast Asian, European and US equities, in particular.

Accordingly, at the end of November 2021 (the latest data available from SEC[1]), Thai assets in foreign investment funds soared almost 30% from a year earlier to about 1.76 billion Baht (about 55 billion US dollars).

While this is an apparently welcoming sign of a strengthening funds industry and an evolving capital market, it also raises questions. Is the recently increasing interest in overseas assets a product of vigorous post-COVID economic recoveries overseas and a relatively flat domestic market, or an ongoing indication that local investors are growing more adventurous?

If the latter, what are the next steps the industry needs to take to embrace this evolving market? Are domestic funds afforded adequate access to global funds, and what obstacles need to be overcome to drive this internationalisation trend forward?

These were the key questions under discussion at Calastone’s recent webinar, featuring Thai and Thai-focused asset managers from Thanachart Fund Management, StashAway Asset Management Thailand, BNY Mellon Investment Management.

An enduring trend

It was generally agreed that though 2020 and 2021 did witness a rush of Thai investors wanting exposure to rebounding post-COVID overseas markets, the trend for outward-looking investment is not just a short-term fad.

“We do see that the Thai market is one of the more advanced in Southeast Asia in terms of appetite for new ideas,” said Paul Liu, Singapore CEO and Head of Intermediary Distribution for Southeast Asia at BNY Mellon Investment Management.

Still, despite this emerging enthusiasm, the Thai investment market has enormous scope for expansion and diversification, according to Tim Niranvichaiya, Managing Director, Thailand at StashAway Asset Management.

“Right now, it’s accelerating; global equity (investments) increased about 90% year-on-year in 2021, and we are going to see more and more people investing overseas to capture growth in more exciting and innovative sectors,” Tim said. “But if you look at the total mutual fund industry (in Thailand), global investment accounts for around 18% – that’s still relatively small.”

But demand is on the rise, and the diversity of assets held by Thai investors will grow in tandem. Interest in thematics such as tech, healthcare and ESG investment is increasing, driven by both institutions and bottom-up demand from investors. But, given the relative lack of these sectors in Thailand, the only way for investors to access these opportunities is through global funds. These twin forces are likely to prompt an ever-widening range of available investment choices.

As Paul noted in the webinar, this is part of the natural progression of a maturing investment climate. As investors become more global-minded, “regulators will slowly open up the market and…Thai investors will really be spoiled for choice in the next few years,” he said.

Evolutionary steps

Judging what asset classes will spark the enthusiasm of Thai investors is another matter. The 2021 surge of capital into China-focused equity funds may not outlive slowing economic growth, a tightening of investment regulations and a cooling property market. Likewise, “the turbulence of a rising rate cycle”, emerging inflation and a fluctuating local currency may also impact domestic appetite for foreign assets, noted Thiranuch Thampimukvatana, Assistant Managing Director and Head, Foreign Investment Fund at Thanachart Fund Management.

In the long-term, however, increasing overseas diversification will be an important evolutionary step for an investment market, according to Tim.

“If you ask whether Thai investors currently have well-balanced, diversified portfolios, the answer would be no,” Tim said. “If you look at the top level, Thai investors hold around 40-47% cash, whereas in North America the average is around 14%. Also, Thai investors still tend to invest in domestic assets, whereas it’s better for them to invest overseas to have a more diversified risk-management.”

Past volatility in the currency – particularly the enduring psychological impact of major crises in 1997 and 2008 – has contributed to the reticence of Thai investors. And, as Thiranuch observed, this remains a “key, key factor”. The realisation that overseas diversification smooths out the effect of currency volatility over the long term is gradually dawning, however.

“If customers invest systematically over months and years then they will eventually receive and average USD-Thai Baht cost, so currency is just another tool to manage portfolio risk,” Tim said. “For example, when the domestic market is not doing well and the Baht likely will depreciate, an investor’s overseas portfolio will likely see currency gains.”

Regulation and education

The key to deepening Thai exposure to foreign assets lies in both regulation and education, and both areas have scope for gradual but steady improvement. Currently, banks and fund managers do produce a lot of educational content but a lot of the material is aimed at the top level of the market and too complex for mainstream retail investors.

“Having very simple, easy-to-follow knowledge aimed at the lower-income market would really help,” Tim said. “We’ve seen the trend of YouTubers and others producing content for mass education, and we’re on the right track, but it’s only just beginning. There’s still a lot more to do to help Thai people invest better.”

Because a significant portion of the market remains under-educated, Paul noted that customers in Thailand – and Southeast Asia generally – tend to fixate on performance returns, rather than taking a broader view of asset allocation and risk-management. At this stage, when a significant percentage of Thai people are new to the market, investors “will have to go through a few down cycles before they realise that it makes sense to look at the perspective of risk-adjusted returns.”

As investors become more educated, regulators will need to respond by easing access to international funds and enabling regulations to evolve to catch up with the pace of technology disruption, the participants agreed.

For instance, joining Calastone global funds network allows Thai fund distributors access the entire international funds market, giving them high visibility and control over order flows without the need of changing the existing infrastructure.

“We generally need to make the whole process easier and more efficient; having more players and platforms to enable people to buy and sell international funds, and bypass the double-fee structures but at the same time give the right recommendations to investors,” Tim said.

While having access to a broad range of funds via the Calastone network will create a more robust Thai funds industry, at the same time fund managers can’t expect Thai regulators to simply swing open the doors. Though some may advocate that route, phased liberalisation would better serve investors, Paul argued.

“From the foreign fund manager’s point of view, the easiest way is to open the market completely, so that we just go in and work with distributors to offer a range of funds,” Paul said. “But it’s not doing the Thai investor any good to just open the floodgates. If it’s not handled properly, people may have the wrong understanding of investment and start speculating, which is not something either fund houses or regulators want to see.

“As fund managers, we just need to have a little bit of patience.”

[1] Thai SEC

Leo Chen, Managing Director - Head of Asia

Calastone in Thailand

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