SET sees 2020 as key year to lure investors
More foreign products and infrastructure are needed
With a cautiously optimistic view of the global and domestic economies, the Stock Exchange of Thailand (SET) contemplates 2020 as another challenging year for its development blueprint and preparing new infrastructures where digital technology and decentralisation will play a greater role.
In a new market environment where globalisation has enhanced interconnectivity and shortened the business cycle, bourses, intermediaries and investors all have to adapt to constant changes in the capital market.
"Stock exchanges and intermediaries must have global asset classes with different risk levels -- from fixed-income securities and equity instruments to infrastructure funds, property funds and real estate investment trusts -- to serve investors' diversification needs in the domestic capital market," SET president Pakorn Peetathawatchai told the Bangkok Post in an exclusive interview.
For the SET, the bourse has to prepare additional foreign investment tools besides existing instruments such as exchange-traded funds (ETFs) having underlying assets based on foreign equities in China, Japan, Europe, the UK and the US, as well as gold, he said.
If there are not more investment choices available in Thailand's bourse, investors will invest in these assets either by themselves or through other intermediaries.
Many SET-listed companies raise funds for global business expansion, making the challenge how to facilitate them doing so from the Thai capital market.
"We are considering how to raise funds in foreign currencies or whether we should have foreign stock exchange partnerships that will enable SET-listed companies to raise funds in foreign currencies more easily through mutual recognition agreements," said Mr Pakorn.
"We are also deliberating how to help companies conduct cross-border businesses in CLMV [Cambodia, Laos, Myanmar and Vietnam] countries or Asean as a whole, and how to help regional companies raise funds in Thailand more easily."
On Dec 18, 2018, the SET listed the first depositary receipt representing a Vietnam ETF issued by Bualuang Securities.
A depositary receipt is an investment instrument that represents a foreign company's securities issued by commercial banks or brokerage firms with the approval of the Securities and Exchange Commission. This instrument enables Thai investors to have exposure in foreign assets through the SET.
Although the Vietnam ETF is not an initial offering, it can be considered as establishing a linkage among Asean stock markets, especially from a CLMV country, he said.
Stock Exchange of Thailand president Pakorn Peetathawatchai. No photo credit
"Whenever the linkage has liquidity in the future, we will start explaining the concept of 'invest anywhere', a connected marketplace that can help those wanting to raise funds with maximum benefits," said Mr Pakorn.
The bourse also wants to invest in capital market infrastructure to expand the investor base, in addition to settrade.com, an online securities trading platform, and FundConnext service, a platform enabling investors to buy local and foreign mutual funds from various asset management firms.
"The capital market's payment system uses the National Digital ID to verify, certify and approve account opening [of mutual funds and securities] without going to branches," he said.
Under the proposed digital ID bill, a national digital ID company will be set up to build a digital ID platform to identify and authenticate citizens' digital IDs.
With digital ID, banks can verify customer identity with greater convenience and security because of electronic Know-Your-Customer technology, which should subsequently foster growth in digital loans and lead to attractive interest rate offers, based on borrowers' risk profiles, which will be assessed using data analytics, said Mr Pakorn.
But personal privacy breaches and questions about service reliability and heavy-handed use of cybersecurity laws have raised alarm among some observers.
The easiest way to draw more people to invest in the capital market, even smallest amounts, is to make account opening easier for asset management companies, he said.
"This is why we want to invest in capital market infrastructures -- to expand the investor base and enlarge the portion of intermediaries," said Mr Pakorn.
While the SET has been a desirable fundraising platform for large corporations, small and medium-sized enterprises (SMEs) and startups still have limited gains in terms of capital market access and benefits, presenting a challenge for the bourse.
Having a crowdfunding platform is not enough to serve small firms as a decentralised platform should also facilitate ease of doing business and offer information for due diligence analysis, or for analysts to provide investment ratings, he said.
Under this decentralised ecosystem, all necessary information, such as investment, accounting, IT and payment systems, will be available on a platform provided by the SET and external parties can connect with the bourse to download information for analysis, research, ratings or investment decision-making, said Mr Pakorn.
"It will not be easy [to develop] as the roles of market participants will change under this new ecosystem," he said.
"We may have artificial intelligence to prepare peer analysis for investors, or have qualitative, experienced analysts or researchers to give investment ratings."
With peer analysis and credible investment ratings, the new ecosystem could allow asset management companies to invest in startup and SME projects for diversification, then bundle investment units into mutual funds and offer them to retail investors, as opposed to sophisticated investors at present, said Mr Pakorn.
Capital market regulations might have to be amended to facilitate such an ecosystem, he said.
But the bourse will not abandon its traditional trading platform as both traditional and decentralised platforms will be developed side-by-side, said Mr Pakorn.
Although it is difficult to describe what the Thai capital market will look like in four years because of rapid changes in technology, a plan has been hatched to fully digitise the SET's future operations.
"The term 'capital market' may remain the same, but various functions, duties and tasks could completely change. The SET must have a digital asset platform, conduct workshops and study digital technology-related regulations to determine what the digital asset platform will look like," he said.
Fundamentally speaking, many uncertainties, from international politics and global interest rate movement to trade disputes that occurred in 2019 should diminish this year as these unexpected events have already been priced in by all parties, said Mr Pakorn.
There will be greater clarity on US politics and Brexit negotiations, while a hike in interest rates in emerging economies is not anticipated because these economies are still reeling from sluggish exports and domestic consumption, with low inflation and tepid investment adding to the influx of reasons for an accommodative monetary policy, he said.
Thailand's public and private sectors are expected to take action on their investment plans this year, with adaptability identified as the main strength of the private sector, he said.
"Although some issues will have a clearer direction, investors should be aware of unexpected uncertainties as they have not disappeared yet," said Mr Pakorn.
The SET index recorded a minuscule gain of 1% in 2019, ending a year in which it was one of the weakest performers in Asia.
Most Southeast Asian bourses recorded modest single-digit percentage gains in 2019, compared with double-digit increases for most peers across the rest of Asia-Pacific. The Nikkei 225 in Japan, China's Shanghai Composite index and equity markets in Australia, New Zealand and Taiwan all saw gains of more than 20% from 2018. Even the Hang Seng index managed a 12-month gain of nearly 13%, despite the impact of the protests that have rocked Hong Kong for nearly seven months.