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Despite deregulating brokerage commissions and major new issues such as the Ratchaburi power plant operator, shares succumbed to a raft of uncertainties clouding the market

 

STOCKS

Hungry investors watch the tides

NUNTAWAN POLKWAMDEE

Many analysts predicted 2000 would be a banner year for the Stock Exchange of Thailand, with the composite index forecast as high as 650 points on the heels of strong progress in debt restructuring and a recovery in domestic consumption and investment.

Instead, Thailand's stock market has proved to be one of the worst performers in the world, losing over 43% for the year to date as of mid-December.

High oil prices, the falling baht and political uncertainties helped puncture much of the optimism of investors in Thai stocks felt earlier in the year.

The slowing pace of debt restructuring raised questions whether the hundreds of billions of baht in capital raised by local financial institutions was enough or further rounds of capital increases were needed.

The shrinking size of the market was reflected in Thailand's declining weightings in the MSCI indices, further reducing the country's attractiveness to international portfolio investors.

Even with the government's steadfast commitment to a low-interest rate policy, helping spur restructuring and reduce business costs, has done little to boost sentiment on the exchange. Investors continued to take a risk-averse position and maintained their funds in bonds or bank deposits, despite the low returns.

The SET index reached its peak for the year at 498.46 points in April, while reaching its low at 250.6 in November. Market capitalisation at the end of the third quarter was 1.34 trillion baht.

Regulators at both the SET and the Securities and Exchange Commission launched numerous measures over the year to try to increase the number of products on the exchange and encourage investor demand.

The SET began pro-active marketing to draw promising companies to list and urged the government to accelerate state enterprise privatisation.

General Environmental Conservation, an industrial waste treatment firm, was the first company to list on the exchange in 2000, issuing 10 million shares at 30 baht each. But the firmûs share price has fallen steadily since listing in late-September, trading at around 15-16 baht by mid-December.

November saw the second listing of the year, Ratchaburi Electricity Generating Holding. The power firm launched a mammoth public offering of 580 million shares at 13 baht each, with subscription filled in just 17 minutes.

Cal-Comp Electronics also completed an initial public offering in December, with 30 million shares placed for 30 baht each. Trading of electronics manufacturer is expected to begin in early January.

Activity at the SET's sister exchange, the Market for Alternative Investment, was quiet throughout 2000. No company had yet listed as of December, although several firms were expected to enter the MAI in January.

SET directors approved several important initiatives in the area of new derivative products. Starting in 2001, trading in SET 50 index options will begin, where investors can buy or sell options based on movements in the SET 50 index.

Exchange traded funds will allow local investors to invest in overseas markets. Units in ETFs will be issued by a new SET subsidiary, which in turn will invest in overseas securities, with an initial limit set at $100 million.

The SET also approved the issue of non-voting depository receipts, a means for foreign investors to invest in securities listed on the local board, receiving equal rights to dividends and rights issues, but without the right to vote at shareholders meetings.

Sweeping changes

For local brokers, a sweeping change affecting the industry occurred in October, when commissions were allowed to float freely after years of having been fixed at a flat 0.5% of each transaction.

Most brokers immediately cut their fees to around 0.25%, while some launched promotions essentially offering free trading in a move to build their customer base, but the cheaper trading costs did little to spur overall market turnover, which ranged mostly from 1-3 billion baht per day over the second half.

Share prices for many securities firms nosedived, as margins tightened due to the increased competition in the market and lower commission rates.

Many analysts believe the SET index could range from 370 to 450 points in 2001, based on projections of slightly slower economic growth and uncertainties in global oil prices and interest rate trends, both locally and abroad.

New policies will be launched by the next government will be closely watched by investors. While many investors lean toward Thai Rak Thai's more aggressive platform in pro-growth strategies and plans to set up a national asset management company, others express concern that the policies could have significant adverse impact on the country's growing public debt.

Another uncertainty facing the exchange are growing signs that some of the top performers on the market are increasingly looking to delist to save expenses and avoid strict disclosure regulations.

With share prices for many firms trading at sharp discounts, several companies have seen their major shareholders launch tender offers in a bid to take their firm private again at relatively low cost.

Under current conditions, issuing debt is significantly cheaper than issuing equity, which is one of the main reasons why firms choose to list in the first place.

Fears that the market will become increasingly marginalised as the best firms leave and investor interest diminishes prompted many participants, such as the Association of Securities Companies and the Association of Listed Companies to call on the government to launch broad new measures to boost the market, such as preferential tax treatment for listed firms.

The SEC, to assist local securities firms expand their potential revenue streams, announced it would allow firms to issue unit trusts, serve as insurance brokers or issue derivative products such as index options.

Securities regulators also approved several new classes of mutual funds, including retirement funds aimed at people such as self-employed professionals or farm workers not otherwise able to join a provident fund.

The SEC also finalised work on a new class action law aimed at strengthening the rights of minor shareholders in their claims against company executives or directors for actions damaging to a firm's interest. A new trustee act is also planned, aimed at clearly separating assets managed by funds to protect investors in the case of the collapse of an asset management firm.

Competition in the fund management industry grew steadily throughout the year, led by companies such as Ayudhya Jardine Fleming Asset Management, Nakornthon Schroders and BoA Asset Management.

Fixed-income funds remained the most promising class of funds, owing to the bearishness of the equities market and higher returns offered by government and corporate bonds over bank deposits.

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