How do you assess the impact of recent global political and economic shocks on capital flows to the Thai market?
Chavinda Hanratanakool: We expect to continue to experience volatility in Thai capital markets from several external factors. The US remains the global economy that influences capital flows to and from emerging markets, including Thailand, and the current state of uncertainty regarding the US’ political and economic policy, along with its eventual implementation, is indeed creating a degree of irritation in the global markets.
One major factor to keep track of is the anticipated interest rate hike to be announced by the US Federal Reserve, and our expectation is that interest rates will be hiked three times over 2017. Of course, interest rate hikes in the US would lower the interest rate gap present between the American and Thai benchmarks, and these hikes typically result in capital outflows from emerging markets. Furthermore, we must keep an eye on the changes to the US’ corporate income tax, import tax and export tax rates, which will impact global economies.
Looking elsewhere, Europe is also experiencing some volatility, especially in political terms, with several national elections to be held in 2017, which should reveal Europe’s trajectory. In terms of the Chinese economy, 2017 should see it better positioned, with both official government and independent economic indicators pointing towards sustained growth. The Japanese market has a low upside, but competent policy continues to be a safe haven largely separated from volatility elsewhere.
Focusing on interest rates, we do not expect to witness a reciprocal policy move from the Bank of Thailand due to current economic conditions. These conditions should especially stand to benefit equity markets, which should hold good potential for investors across emerging markets in 2017.
What are the key factors driving positive investor sentiment in the short term?
Chavinda: The Stock Exchange of Thailand index continues to exhibit a wide range between the upside and downside, and is neither overvalued nor undervalued in comparison with regional and global peers. In 2016 growth was driven by the financial sector, and this could continue moving forward as financial services experience a boost whenever interest rates rise. Another industry to look at is construction, which should see high levels of activity towards the second half of 2017 as infrastructure projects come to fruition.
In what ways is the sector looking to create investor appetite for riskier and more complex financial products?
Chavinda: I believe that the global market is close to a zero-sum game, and that when one market is down another is inevitably up. Thus, as asset managers we have to provide more sophisticated products to be available to customers at the right time, and many in the sector are looking to increasingly offer that variety. While roughly 80% of Thai investors still tend to focus on conservative, risk-averse financial products, there is a sizeable market with an appetite for greater risk, and there exists plenty of room for growth in this regard. It is partly incumbent on the sector players themselves to encourage clients to more precisely model their portfolios, and putting many products on the shelf is beneficial to that.
I see potential in growth funds in the neighbouring countries of Cambodia, Laos, Myanmar and Vietnam, as the area with Thailand included has a combined market of approximately 250m people, with the more emerging markets in the region experiencing high rates of economic and consumption growth. Many equities in these markets are cross-listed in other national exchanges, and we can tailor the fund accordingly.
Hybrid products, such as property investment funds, are also increasing in popularity and are attractive to those investors who find themselves between the equity and fixed-income markets and desire recurring income. The Thailand Future Fund, set to launch in 2017, should prove interesting for medium-risk clients. Asset allocation for clients is important, and there must be a combination of both low and high-risk products to cater to all needs.
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