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Cinderella misses out on recovery ballThe equities market feels like the poor relation of banks and finance companies when it comes to getting government attention
Optimism that stock prices would rally in 2000 vanished, as the Stock Exchange of Thailand index dropped steadily through the first half. In late May, the index dipped briefly to as low as 297 points, before recovering slightly to around 310. From January to mid-June, Thai stocks were among the worst performers in the region, off nearly 30% and second to only Indonesian shares. The bearishness prompted local securities firms and the SET to clamour for new support from the government. Brokers blasted the government for its neglect of the equities markets in setting broad economic policies. While support for the banks and finance companies has been lavish in the past three years, little attention has been given to the equities markets and listed companies overall, critics said. The efforts have succeeded in catching the attention of policy makers who, by late June, agreed to examine means of helping develop the markets and increasing its attractiveness to investors. For the Association of Securities Companies, the key point is to ensure that the two main policy bodies Ñ the Finance Ministry and the Bank of Thailand Ñ allocate the same attention to the equities markets as has been given to the banking and debt markets in their financial reform plans. Building liquidity and confidence in the equities markets is equally crucial for the country's economic development and overall recovery, brokers say. At the same time, regulators have to show better teamwork in co-ordinating policies. Investors pointed to the drawn-out battle between the central bank and the Finance Ministry over how to pay for financial sector losses as a key example of how public disputes can hurt market confidence. Sentiment was further dampened in the first half after reports that Morgan Stanley Capital International had cut Thailand's weightings in its Asia-Pacific benchmarks to just 1.8%. The benchmarks, used by many international institutional investors in determining their capital allocations across different markets, reinforced local fears that foreign investors would continue to dump Thai shares for more promising returns elsewhere. Turnover on the SET fell sharply, totalling 52 billion baht for May compared with 98 billion in December.
Foreign investors had dumped Thai shares steadily since late 1999, seeing greater opportunities in telecommunications, technology and media shares in the developed markets and elsewhere in the region. Most local analysts agreed that the main domestic factors deterring rising investment interest were sluggish declines in non-performing loans, uncertain recovery across the economy and political uncertainties heading into general elections scheduled for the third or fourth quarter. Given the problems encountered with vote-buying and corruption in the Senate elections in the first half, many political observers believe it won't be until early 2001 before a full parliament can be convened again. The Chuan Leekpai government, generally lauded by local and foreign investors for its efforts to revive the economy, will complete its four year term in November. Few expect early elections to be called before September at the earliest, as the government has expressed its intention to see the fiscal 2001 budget through the house. Steady increases Overseas, investors in Thailand and elsewhere closely followed the gyrations of US equities markets, particularly the tech-heavy Nasdaq. Steady increases in US short-term interest rates by the Federal Reserve has also sparked jitters by local investors, concerned about the potential impact on capital flows and slowing export performance from a slowdown in the US economy. Most analysts near the end of the first quarter revised their year-end index targets to around 470-500 points from previous forecasts of 650. For local brokers, the drop off in investment activity is particularly worrisome, given the new commission structure to be implemented on September 1. Replacing the previous fixed 0.5% structure, the new system will allow free negotiation of commission fees, with a floor set at 0.25% of transaction value. Market studies showed that daily turnover must exceed 3.5 billion baht to allow existing brokers to break even under the current fee structure. Assuming all brokers immediately cut their rates to 0.25%, the result is that daily turnover has to reach at least seven billion baht to keep the current firms in market in the black. Local securities firms, knowing that losses for the fourth quarter are inevitable without adjustments, have moved aggressively to slash costs and strengthen other revenue sources, such as investment advisory services.
Leading the list of recommendations to spur market activity was a call for new reductions in corporate taxes for listed firms. Other recommendations include proposals to allow stock dividend payments, rather than cash, allowing firms to buy back their own stock and reducing par value of shares to bolster the number of shares available for trade in the market. Off-hours trading The SET began off-hours trading on May 2, expanding trading hours by 30 minutes to 5pm, just one of several measures taken to increase convenience for investors. The SET's sister exchange, the Market for Alternative Investments, also eased listing requirements and announced it would set up a new trading board aimed squarely at the same high-growth, ``New Economy'' firms which have fueled rapid market growth overseas. Rather than relying on past-performance, regulators would focus on a disclosure-based model for evaluating listing applications, accepting the trade-off of higher potential risks for investors in return for the hopes of expanding the market. Even so, no company has yet listed on the MAI, stung in part by the sharp declines in market sentiment over the second quarter. But analysts also note that one promising sign for the future, fickle investor sentiment notwithstanding, was the general improvement posted by listed firms in the first quarter. The SET announced that of 369 companies, 230 reported net profits in the first quarter, up from 191 the same period the year before. Out of 31 industrial sectors, 23 reported net profits and 18 increasing profits, led by the communications, building and furnishing materials and pulp and paper sectors. The number of sectors recording net losses for the first quarter fell to eight, compared with 14 for the year before. Six sectors reported reductions in net losses. But the improved corporate performance was not enough to stem market declines. In the past few years, over two trillion baht has been wiped off the market's capitalisation, which stood at around 1.4 trillion at the end of the second quarter. While much of the losses have come from foreign investors withdrawing funds, one recipient has been the bond markets, which has grown steadily to now match the equities market in size. Low interest rates have helped spark numerous new corporate debt issues, which have drawn high interest from investors seeking higher returns than bank deposits for relatively low risk. |
What recovery' Despite general consensus that the broad economy is slowly picking up three years into the economic crisis, investor sentiment remained poor throughout the first half of the year due to political uncertainties at home and rising concerns about the US economy.
Greater opportunities
Market officials did make progress in implementing changes to match the more competitive race for global capital.© Copyright The Post Publishing Public Co., Ltd. 2000
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