Thailand’s stock exchange a major trading hub

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Charamporn JotikasthiraThailand’s stock exchange has the third largest market capitalisation in Southeast Asia and also has emerged into a trading hub for institutional investors. Stock brokers will be able to use a multinational trading platform, the Asian Link, starting in 2012.

Interviewee: Charamporn Jotikasthira, President of The Stock Exchange of Thailand (SET)

Q: The Stock Exchange of Thailand is a major player in the Southeast Asia stock market. What is the current market capitalization and what are the most traded securities?

A: The market capitalization is currently about 8.5 trillion baht which makes the SET the third largest exchange in the region behind Singapore and Bursa Malaysia. Among the top 20 traded securities, we mainly have the petrochemical sector and banks.

Q: How can foreign investors participate in stock trading at the SET? What are the preconditions in terms of money transfer or broking accounts?

A: There are two ways that foreign investors can participate in the SET.  The first way is using international brokers together with a custodian account just like they do elsewhere.  The second way is to use local brokers.  There are approximately 30 local brokers currently.  Local brokers will open a Thai account for them.  There is no limit for the amount that anyone can invest into Thai securities. The Thai tax regime is similar to other countries

Q: You recently revised the SET’s business plan for 2012 due to the flood crisis. What are the major changes?

A: Well, despite of the flood we do not have to change our business plan. After we checked out how severe our listed companies have been affected by the event, it turned out that less than one per cent of the SET’s market capitalisation was affected by the floods. However, we believe that the government will have to put a lot of spending into revamping industrial estates, and this will have a stimulus effect.  Also,  the government funding should not be a problem, since  there is so much liquidity in the market.

Q: How active is the bond and derivative market on the SET?

A: Bonds are still very much in the banking and wholesale market. In the last five years there were a lot of foreign investors coming in and buying bonds, because they wanted to benefit from the strengthening of the baht and the declining of the yield.  And the Thai bond market has been quite liquid recently, especially for those bonds with a maturity of up to five years, the benchmark.  Also, the Bank of Thailand, they issued a lot of saving bonds with a maturity of up to two years. The OTC derivatives market is growing significantly over the last ten years.

Q: What is the current yield of a benchmark bond?

A: It is very low, around three per cent for a maturity of up to ten years.

Q: Where are the foreign bond investors coming from?

A: This is hard to say in detail, but most of them are the big global fixed income fund managers. At the moment, they perceive the Thai market as an emerging market, when they want to reduce the risk, they go back to the US. The current rating of Thai government bonds in the foreign market is BBB+.

Q: There are talks about a merger of regional stock exchanges. What is your opinion?

A: A merger among Southeast Asian  exchanges would be difficult. However, we are launching a cooperation called ASEAN Link, a major stock trading highway connecting seven ASEAN exchanges. This means a local broker will be able to trade in other Southeast Asian countries’ stocks. In addition, investors don’t have to pay local taxes if you use the ASEAN Link to buy shares from another country. Regarding a merger of the stock exchanges, there have been talks by the Ministers of Finance that exchanges should share resources, but I don’t think that this will happen in the next five years. But there will be more cooperation. Right now, we are starting an ASEAN index, called ASEAN Stars, which contains the 30 most attractive companies in six ASEAN countries, altogether 180 stocks. The stocks are based on the market capitalization and other factors. Once we have this completed, there will be an investable ASEAN Star index coming out, and also funds. Investors then can invest in Asia through this vehicle.

Q: The Capital Market Development Plan aims to increase market capitalisation of the SET to 1.3 times the gross domestic product in 2013. Is this a realistic target and what measures have been taken?

A: We believe that even though there have been some difficulties during the last couple of months, the target of these 13 trillion baht of market capitalisation which should be achievable in 2013. The financials of our companies are very strong, they show ability to decouple from external shocks. If somebody wants to invest into a region with a possibility to grow, he should come here.

Q: Is there something like ADRs for Thai stocks?

A: Yes, they have been there in New York since 20 years ago, but are not very popular. However, In Taiwan, Thai ADRs are very successful there because the branches of Taiwanese electronic firms operating here have been issued their own ADRs in Taiwan using their Thailand based stock. We plan to have TDR, Thailand Depository Receipts, that will enable Thai Securities companies to issue securities with underlying as a single foreign stock or a feeder fund.

Q: There have been a couple of IPOs in Thailand in 2011. What will be 2012’s major IPOs?

A: We had about 60 billion baht value in IPOs in 2011. We expect that the number to double in 2012. There will be mostly medium-sized companies, but also Thai Air Asia, which has been delayed from 2011.

Q: What are the rules for foreign companies wanting to get listed on the SET or wanting to buy a registrable amount of shares or even merge with Thai companies?

A: It can be a cross listing or a dual listing, this is possible. The company, however, has to be incorporated here. And investors can technically buy up to 49 per cent of a Thai listed company. Certainly, a merger or takeover is possible.  For example, ABN, DBS, CIMB and Scotia have been investing in or taking over Thai banks.

Q: How does the licensing process for foreign brokerages/asset managers/financial advisers work?

A: First a newcomer has to go to the SEC (Securities and Exchange Commission Thailand) to get a license and then come here to the exchange to get a seat. The minimum required capital is 500 million baht. Applications are accepted starting January 2012.

Q: Recently, Thailand started to issue sukuk bonds and other Shariah-compliant financial instruments to address investors and financial institutions from the GCC. How do you assess the chances for Islamic banking and finance in Thailand in general?

A: At the moment, the Stock Exchange of Thailand has a Shariah index.  MFC, a large asset management firm, is offering such products, and also the Islamic Bank of Thailand. When we look at the performances of Islamic funds, they are fantastic. We see potential for Islamic finance and trading in Thailand, but at the moment we are only assessing this for the SET. We need to understand it more, there are a lot of details to look into.

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Reading Time: 5 minutes

Thailand’s stock exchange has the third largest market capitalisation in Southeast Asia and also has emerged into a trading hub for institutional investors. Stock brokers will be able to use a multinational trading platform, the Asian Link, starting in 2012.

Reading Time: 5 minutes

Charamporn JotikasthiraThailand’s stock exchange has the third largest market capitalisation in Southeast Asia and also has emerged into a trading hub for institutional investors. Stock brokers will be able to use a multinational trading platform, the Asian Link, starting in 2012.

Interviewee: Charamporn Jotikasthira, President of The Stock Exchange of Thailand (SET)

Q: The Stock Exchange of Thailand is a major player in the Southeast Asia stock market. What is the current market capitalization and what are the most traded securities?

A: The market capitalization is currently about 8.5 trillion baht which makes the SET the third largest exchange in the region behind Singapore and Bursa Malaysia. Among the top 20 traded securities, we mainly have the petrochemical sector and banks.

Q: How can foreign investors participate in stock trading at the SET? What are the preconditions in terms of money transfer or broking accounts?

A: There are two ways that foreign investors can participate in the SET.  The first way is using international brokers together with a custodian account just like they do elsewhere.  The second way is to use local brokers.  There are approximately 30 local brokers currently.  Local brokers will open a Thai account for them.  There is no limit for the amount that anyone can invest into Thai securities. The Thai tax regime is similar to other countries

Q: You recently revised the SET’s business plan for 2012 due to the flood crisis. What are the major changes?

A: Well, despite of the flood we do not have to change our business plan. After we checked out how severe our listed companies have been affected by the event, it turned out that less than one per cent of the SET’s market capitalisation was affected by the floods. However, we believe that the government will have to put a lot of spending into revamping industrial estates, and this will have a stimulus effect.  Also,  the government funding should not be a problem, since  there is so much liquidity in the market.

Q: How active is the bond and derivative market on the SET?

A: Bonds are still very much in the banking and wholesale market. In the last five years there were a lot of foreign investors coming in and buying bonds, because they wanted to benefit from the strengthening of the baht and the declining of the yield.  And the Thai bond market has been quite liquid recently, especially for those bonds with a maturity of up to five years, the benchmark.  Also, the Bank of Thailand, they issued a lot of saving bonds with a maturity of up to two years. The OTC derivatives market is growing significantly over the last ten years.

Q: What is the current yield of a benchmark bond?

A: It is very low, around three per cent for a maturity of up to ten years.

Q: Where are the foreign bond investors coming from?

A: This is hard to say in detail, but most of them are the big global fixed income fund managers. At the moment, they perceive the Thai market as an emerging market, when they want to reduce the risk, they go back to the US. The current rating of Thai government bonds in the foreign market is BBB+.

Q: There are talks about a merger of regional stock exchanges. What is your opinion?

A: A merger among Southeast Asian  exchanges would be difficult. However, we are launching a cooperation called ASEAN Link, a major stock trading highway connecting seven ASEAN exchanges. This means a local broker will be able to trade in other Southeast Asian countries’ stocks. In addition, investors don’t have to pay local taxes if you use the ASEAN Link to buy shares from another country. Regarding a merger of the stock exchanges, there have been talks by the Ministers of Finance that exchanges should share resources, but I don’t think that this will happen in the next five years. But there will be more cooperation. Right now, we are starting an ASEAN index, called ASEAN Stars, which contains the 30 most attractive companies in six ASEAN countries, altogether 180 stocks. The stocks are based on the market capitalization and other factors. Once we have this completed, there will be an investable ASEAN Star index coming out, and also funds. Investors then can invest in Asia through this vehicle.

Q: The Capital Market Development Plan aims to increase market capitalisation of the SET to 1.3 times the gross domestic product in 2013. Is this a realistic target and what measures have been taken?

A: We believe that even though there have been some difficulties during the last couple of months, the target of these 13 trillion baht of market capitalisation which should be achievable in 2013. The financials of our companies are very strong, they show ability to decouple from external shocks. If somebody wants to invest into a region with a possibility to grow, he should come here.

Q: Is there something like ADRs for Thai stocks?

A: Yes, they have been there in New York since 20 years ago, but are not very popular. However, In Taiwan, Thai ADRs are very successful there because the branches of Taiwanese electronic firms operating here have been issued their own ADRs in Taiwan using their Thailand based stock. We plan to have TDR, Thailand Depository Receipts, that will enable Thai Securities companies to issue securities with underlying as a single foreign stock or a feeder fund.

Q: There have been a couple of IPOs in Thailand in 2011. What will be 2012’s major IPOs?

A: We had about 60 billion baht value in IPOs in 2011. We expect that the number to double in 2012. There will be mostly medium-sized companies, but also Thai Air Asia, which has been delayed from 2011.

Q: What are the rules for foreign companies wanting to get listed on the SET or wanting to buy a registrable amount of shares or even merge with Thai companies?

A: It can be a cross listing or a dual listing, this is possible. The company, however, has to be incorporated here. And investors can technically buy up to 49 per cent of a Thai listed company. Certainly, a merger or takeover is possible.  For example, ABN, DBS, CIMB and Scotia have been investing in or taking over Thai banks.

Q: How does the licensing process for foreign brokerages/asset managers/financial advisers work?

A: First a newcomer has to go to the SEC (Securities and Exchange Commission Thailand) to get a license and then come here to the exchange to get a seat. The minimum required capital is 500 million baht. Applications are accepted starting January 2012.

Q: Recently, Thailand started to issue sukuk bonds and other Shariah-compliant financial instruments to address investors and financial institutions from the GCC. How do you assess the chances for Islamic banking and finance in Thailand in general?

A: At the moment, the Stock Exchange of Thailand has a Shariah index.  MFC, a large asset management firm, is offering such products, and also the Islamic Bank of Thailand. When we look at the performances of Islamic funds, they are fantastic. We see potential for Islamic finance and trading in Thailand, but at the moment we are only assessing this for the SET. We need to understand it more, there are a lot of details to look into.

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