By Ben Davies
Pakorn Peetathawatchai, president of the Stock Exchange of Thailand (SET), is optimistic: he expects a spate of big IPOs to liven up his market now that Thailand’s elections are out of the way.
“I can’t disclose much, but I can tell you that we have some very big companies in the pipeline in interesting and fast-growing industries,” he tells Asiamoney.
Among the names widely discussed are: Central Retail Corporation, the country’s biggest mall developer, which is owned by the powerful Chirathivat family; PTT Oil & Retail Business, the retail arm of state-owned energy firm PTT; and the domestic property business of Charoen Sirivadhanabhakdi, the Thai billionaire who controls Thai Beverage.
But Pakorn, who took over as president of the SET in June 2018, knows he cannot afford to sit back and relax.
“We are no longer just competing with stock exchanges,” he says. “We are competing with crypto assets, digital assets and many other kinds of alternative investments in the world.”
Pakorn is intent on developing a financial services model that combines new delivery platforms and products alongside the traditional market.
“In the past we used to say that we wanted to become the capital markets hub for Asean,” he says. “But in the future, it seems like connectivity and the ability to link all markets cross-border and offer products across asset classes will be more important.”
On paper, the SET’s recent numbers look good. Average daily trading value for companies listed on the main SET board, together with the smaller Market for Alternative Investment (MAI), hit $2 billion in July, the highest level so far this year. That puts it way ahead of rivals Singapore with $784 million and Indonesia with $607 million.
In terms of market capitalization, the SET ranks third after Singapore and Malaysia, with a respectable $544 billion.
But the figures conceal serious structural weaknesses. Officially the SET has 1.7 million investor accounts. Yet only about 500,000 of these accounts are classified as active, meaning that they trade at least once a month. There may also be as many as three or four million mutual fund accounts in the country, although the figures are widely disputed.
Still, even if those numbers are correct, what that tells you is that the vast majority of the Thai population have no involvement whatsoever in the capital markets.
“The numbers are small,” admits Pakorn.
There are other problems too.
“Thailand’s capital markets, in my opinion, remain radically underdeveloped,” says one senior investment banker with more than 20 years’ experience in the market. “I get very upset with the authorities because they look at the wrong thing. They look at turnover and think they are heroes, rather than encouraging institutional investors, who are the natural shock absorbers in the market, to invest.
“One of the reasons why trading volume in Thailand is high is because investors are not encouraged to branch offshore and look at alternative instruments or look at hedging. It is just a vicious circle.”
Paul Renaud, a former Morgan Stanley broker who has run www.thaistocks.com since 1997, is also disturbed by what he sees as the failure of the authorities to put the interests of small retail investors before those of the powerful local securities houses.
“This is a failing industry,” he tells Asiamoney. “Brokers view themselves as commissioned salesmen rather than as long-term wealth creators. As a result, many retail investors are induced to day trading, and most lose money over time. The first thing the authorities have to do is acknowledge there is a problem. My feeling is that they have not done so.”
Renaud also points out that the vast majority of the 700-odd companies listed on the SET and the MAI are not even covered by analysts, leaving investors “totally in the dark.”
Pakorn listens patiently to the list of grumbles, nodding his head earnestly.
“I agree with you that we have not developed our investor base enough,” he says. He does, though, appear determined to do something about it.
'Digital asset ecosystem'
The SET has already taken some important steps. Take FundConnext. Launched in 2017, this open-architecture platform streamlines mutual fund distribution by giving investors access to a wide range of Thai funds. So far, 20 local asset management companies have joined the system.
Pakorn says the next step is to link FundConnext with Clearstream’s global fund processing platform Vestima, enabling international investors to join the party.
Then there is the SET’s LiVE trading platform. This aims to attract crowdfunding for startup companies and small and medium-sized enterprises using blockchain technology. In June, LiVE joined forces with Microsoft (Thailand) to scale up the business and create a virtual pitching platform.
It’s all part of building up what Pakorn calls “a digital asset ecosystem” to improve market efficiencies, speed up delivery, lower costs and offer a broad-based digital platform that “covers all the things that the traditional exchange has been unable to serve”.
However, he points out that the SET needs partners.
“We cannot do everything alone,” he admits. “For the new model to work, we need partnerships with securities firms, asset management companies, issuers, custodians and fintech firms.”
Do you remember how Hong Kong used to be the entry point for investors in Thailand back in the early 1990s before we became a bigger market? We want to make Thailand the entry point for CLMV- Pakorn Peetathawatchai, SET
Other critical issues also need to be addressed, such as how to promote the digital assets class without simply fuelling the sort of bubble and crash that was seen with bitcoin.
Related to that, how do you police a market that traditionally has had more than its fair share of speculators and insider dealers?
“This is the part that we need to think very carefully about,” he says. “For example, we might have to target accredited investors who understand these high-risk products.”
There is also the issue of how to promote the benefits of long-term investment to a broader segment of the population. This is particularly important if Thailand’s ageing population is to be supported in retirement.
“If you look at the 10-year government bond yield, it is around 2.1%. How can people survive on bond yields that low?” he asks.
“We are working on an application programme that combines education tools with access to financial advisers and investment products,” he explains.
The plan, he adds, is to improve the level of education and understanding of investors and “maybe trading volume will come from this.”
Platforms are one thing. Identifying capital market products that could be a hit with global investors is another. Pakorn rattles off several fast-growing investment areas where he believes Thailand has an edge over the competition, such as tourism, the healthcare industry, hotels and food and beverage companies.
“There are many Thai companies that have high corporate governance rating scores,” he says. “The question is: how can we promote them to passive investors who typically weight the market in line with the MSCI index?
“Let’s say we have a good healthcare industry… We want hospitals from around the region to come here to raise funds. Our ecosystem supports the valuations and we have a large pool of investors that understands this industry.”
Pakorn also has big plans for Thailand’s immediate CLMV neighbourhood: this lumps the frontier markets of Cambodia, Laos, Myanmar and Vietnam into an economic bloc that has a young population of 240 million and average GDP growth of over 6% in the last decade.
“Do you remember how Hong Kong used to be the entry point for investors in Thailand back in the early 1990s before we became a bigger market?” he asks. “We want to make Thailand the entry point for CLMV.”
We haven’t seen much growth yet, but this market is poised to take off- Adisorn Singhsacha, Twin Pine Group
That may be happening already. In June 2018, the exchange launched the SET CLMV Exposure Index, which tracks Thai stocks generating revenues from Cambodia, Laos, Myanmar and Vietnam.
It was the first index of its kind, and Pakorn says it allows investors to gain access to these new markets without jumping through too many hoops.
In December 2018, the SET kicked off Thailand’s first depositary receipt representing an exchange-traded fund (ETF) that tracks the performance of the top 30 large-cap Vietnamese stocks.
Pakorn says the product has been a resounding success. The trading value of the underlying ETF in Vietnam has risen by 50% since its launch, with much of the demand coming from Thailand.
“We were able to shoot two birds with one stone,” he adds excitedly. “We helped to increase the liquidity in Vietnam and we positioned Thailand as the entry point to these assets in the region.”
Adisorn Singhsacha, founder and chief executive of Twin Pine Group, a boutique advisory firm with a strong focus on CLMV, agrees.
“As the deepest and most mature market in the region, Thailand is in a good position to act as a funding hub for CLMV,” he says. “There is ample liquidity here, and local investors and financial institutions understand the risks of neighbouring countries. We haven’t seen much growth yet, but this market is poised to take off.”
Pakorn has plenty of other issues to tackle at the exchange. A former engineering graduate from King Mongkut’s Institute of Technology, who once dreamed of becoming a pilot, Pakorn is well-liked both at the SET and in the broader financial community, where he is known for his meticulous approach to solving problems.
“Pakorn is a professional,” says one banker. “He understands this market and knows what needs to be done. The problem is that the people below him don’t necessarily share his vision.”
He studied at the University of Wisconsin where he earned an MBA in finance, and then at the University of Boston, where he earned a doctorate in finance and economics.
The first full-time job he landed back in Thailand was at Siam Commercial Bank where, under former president Olarn Chaipravat, he created the bank’s first risk management unit, putting in place and backtesting analytical, historical and simulation models.
He went on to join Mitr Phol Sugar Corp as senior executive vice-president before taking up a job offer from the SET in 2010.
“I still see myself as an engineer,” he says with obvious pride. “I like to build infrastructure, and this is the job of the exchange. In order for the industry to grow, we need to have solid foundations.”
Not everyone is convinced that having an engineer run the capital markets is the best solution.
“Engineers are ill-suited for this role because they are used to dealing with certainty,” observes one former Merrill Lynch broker wryly. “Whichever way you look at it, the stock exchange is anything but certain.”
Whether Pakorn’s vision gets the support he needs from the SET Board, which is responsible for formulating policy and supervising operations, is another matter.
In recent years, the board has been made up of 10 members, five of whom are appointed by the Securities and Exchange Commission (SEC) and five of whom are elected by SET members. Not surprisingly, the system has seen more than its fair share of self-interest. On the one hand, there have been prominent local securities members looking to protect their own turf and on the other a handful of bureaucrats, some of whom had little practical experience of global markets.
One securities chief somewhat uncharitably describes the SET Board as “a closed shop filled with people who are generationally challenged.”
In his view, “you need people with a breadth and depth of knowledge on your board. That is how you get innovation. So why is it not happening here?”
Arguably, it is now. A new Securities and Exchange Act, approved in April, has revised the composition of the SET board to allow six appointees from the SEC while reducing the number selected by brokerage firms to four. Better still, the new regulations allow for a maximum of two qualified non-Thai nationals to become members.
“The new SEC law aims to promote better corporate governance and prepare the industry for a more open and digitalized capital market,” says Suchart Techaposai, head of Thailand research at CLSA in Bangkok.
Will the new board and regulatory framework be any better than the old one?
The new SET board was duly named in August. It included such respected names as Jarumporn Chotikasathien, a former president of the stock exchange and a man who is viewed as something of a visionary for his understanding of digital disruption.
Notably absent however were any non-Thai nationals, despite the fact that foreign investors account for close to 40% of stock market turnover.
So much for change.