SET IN STONE

Thailand 2017 | FINANCE | REVIEW: CAPITAL MARKETS

A systematic program of innovation and education backed by law has seen SET evolve into a cutting-edge exchange and regional powerhouse.

The Stock Exchange of Thailand (SET) rang its first bell on January 1, 1991. Yet its history dates back several decades to the ambitious national momentum of the 1960s geared at shoring up the overall economy for stability and growth. The Second National Economic and Social Development Plan (1967-1971) pioneered the concept of a systematic securities market capable of generating additional liquidity for industrialization across the economic matrix. The bourse's first incarnation, the Bangkok Stock Exchange Co., Ltd. (BSE), the bold attempt of local entrepreneurs, failed to take off, largely due to a lack of knowledge at the time on the galvanizing potential of the market, either to raise funds for expansion or as a one-stop-shop for a spectrum of investment instruments. The BSE may have gone to the wall in the 1970s, but that decade also established legislation fundamental to sustainable capital markets, enabling for one, the investment of savings in the capital market. The World Bank-sponsored study A Capital Market in Thailand became the bedrock of the development of today's SET, which as of 1H2016 had an MCap of USD401 billion.

Importantly, capital markets have been pitched as an exemplar for Thailand's wider commercial arena in terms of transparency and best business practice. Overseeing the markets is the Securities and Exchange Commission (SEC). To foster corporate governance of international standards and greater regional inclusivity, SET has also established the Capital Market Academy for knowledge sharing among the 50 top GMS executives from state and private sectors. And meanwhile, it has also proposed an allocation of THB8 billion from its Capital Market Development Fund to promote financial literacy and raise industry workforce standards. Addressing advances in corporate governance, Secretary-General Rapee Sucharitakul explained to TBY how under the ASEAN Corporate Governance Scorecard initiative, in 2015, “Of the top 50 companies that achieved the highest rankings across ASEAN, Thailand had 23 companies, with two among the top five." And to stimulate investor interest, he added that the SEC “was currently working to allow investments in things like hedge funds, high-yield bond funds, and leverage funds." Also on the raft of educational initiatives, the SET has realized its “Money Matters Need Planning: rethink and become wealthy" program Year 3. Its purpose is to inculcate a sense of financial planning and understanding of wealth creation both in the commercial arena and among the general public. Its resources as of 2015 had reached around 2.3 million target groups by leveraging online resources and the mass media.

EXPANDING THE HORIZON

SET does not operate in isolation and is a catalyst of activity in the Greater Mekong Sub-region (GMS) comprising Cambodia, Laos, Myanmar, Thailand, and Vietnam. Among the 2015 listings on SET are two Vietnamese holding companies PM Thoresen Asia Holdings pcl and Amata (Vietnam) Joint Stock Company. That year also saw MFC Industrial Real Estate Investment Trust (MIT) become the first REIT to invest in foreign assets. A guideline has also treated the listing of a designated trust for companies invested in foreign infrastructure projects. A watchdog with teeth, in 2015 SEC fined three senior executives of 7-Eleven convenience store chain operator CP All Plc and one from of True Corporation Plc a total of THB33.3 million for insider trading.

THE INVESTOR OPTIONS

At SET, equity investors trade in stocks listed on the SET benchmark indices, or the Market for Alternative Investment (MAI). Bonds are trade at the Thailand Bond Exchange (TBX), launched on November 26, 2003 to bolster the secondary market and foster investor awareness of available instruments. Incidentally, the bond market has been innovative and backed by legislation enabling greater participation. As Watana Tiranuchit, the President of TRIS Rating told TBY, “There are also new regulations for the baht bond market, which will allow more countries to issue baht bonds that are less restricted on ratings." He revealed how “companies used to require 'A-' international scale rating [Thailand international scale ratings are currently 'BBB+/A-' for foreign/local currency ratings]to issue baht bonds as a foreign company" but today “companies with lesser ratings can also issue them." Thailand's prevailing low interest rate environment is appealing to foreign issuers issuing baht-denominated bonds. Meanwhile, derivatives trade on the Thailand Futures Exchange (TFEX) in the form of debt instruments such as bonds and currencies, as well as commodities and agricultural futures. Launched in 1995, the SET50 Futures Index was Thailand's pioneering large-cap index that benchmarked futures transactions, where constituent instruments are determined by the MCap and high liquidity of the top-50 listed stocks on SET. In 2008, the Commodity Futures Trading Commission (CFTC) made it possible for US residents to trade on the SET50 Futures Index.

MAI KIND OF INVESTMENT

Thailand's small and medium-sized enterprises (SMEs) at around 98.5% of total businesses, claiming a 37.0% stake in GDP and employing 80.4% of the workforce (2012). It is vital, then, to impress upon these enterprises the liquidity generation potential of being listed, as well as the value of the resulting transparency that secures investor interest. To encourage greater financial inclusion, SET launched MAI as part of the Securities Exchange of Thailand Act. Commencing trading on June 21, 1999, it promotes fund-raising for innovative businesses of notable potential growth. As of June 2016, the MAI Index had a total capitalization of THB337 billion, and as of August 30, 2016 the 3-month YtD average trading volume was THB1,197 million. The 52-week index range was 489.65-614.26, and the one-year return at 6.45%.

EQUITY DATA SET

At YE2015, there were 1,646 securities listed on the SET and 166 securities on the MAI market.
For 2015, with the capital markets buffered by domestic economic deceleration, and further afield, that of the Chinese economy, the benchmark SET index closed at 1,288.02 points, on a YoY decline of 14%. MCap slid 11.5% YoY to USD350 billion. Yet equity capital momentum was brisk for the year amounting to USD8.9 billion derived from 41 newly-listed securities. The primary market accounted for USD3.7 billion of the total, featuring 20 companies on the SET, 13 on the MAI, in addition to two infrastructure funds and six real estate investment trusts (REITs). 2015 was also marked by a return to the capital markets of state enterprises after a 10-year hiatus. The players on this occasion were power-generator Global Power Synergy pcl (GPSC), leading Thai refiner Star Petroleum Refining pcl (SPRC), and the Infrastructure Fund of Thailand's Electricity Generating Authority (EGAT).

For the year, local retail investors proved the most dynamic players (59.21% of the total) with a daily trading average of USD727 million, albeit down heavily by 62.32% YoY. Foreign counterparts' average daily trading value reached USD272 million, claiming 22.2% of the total trading on a YoY climb of 6.82%. And finally, the average daily trading value of local institutions was USD115 million, on 9.39% of the total, while that of proprietary traders was USD113 million, on 9.2% of total trading value. Local enterprises and retail investors were the leading net buyers at the stock markets, where these institutions, investors, and proprietary traders respectively purchased a net USD2.3 billion, USD2.2 billion, and USD177 million. Foreign investors in contrast walked away with a net USD4.3 billion.

In 1H2016 the SET Index had scaled 1,444.99 points on 15.2% YoY growth in USD-terms, again, leading the ASEAN group. In a reversal of 2015, foreign investors had turned into net buyers in Thai equities, having purchased USD1.02 billion). This contributed to the SET remaining the region's most liquid market, boasting an average daily trading value of roughly USD1.33 billion, a new ASEAN high since 2012. The combined average daily trading value of SET and MAI in June 2016 was THB57.7 billion, up 24.7% YoY, while their MCap stood at USD400.57 billion, soaring 12.1% from end-2015. As of end-1H2016, the Bangkok SET50 Index of major companies by MCap accounted for 64% of total SET MCap, having climbed 11.9% YoY. The largest sector index contributor to MCap, services, was up 14.8% YoY, accounting for 25%, followed by finance, up 7.6% and accounting for 17% of total MCap. As of August 30, the SET50 Index, at 983.07 had risen 10% over the previous year. The index's historical peak and trough registered at 1079.78 in May of 2013 and 636.07 in October of 2011, respectively.

In summary, the SET, an exemplar of best business practices, is a sophisticated address for trading in a comprehensive range of instruments that meet all investment profiles. Moreover, continued IPO and SPO activity boosts market liquidity, rendering the Thai markets an ever more appealing proposition for local and foreign participation.