FOCUS: SET seeks way to shore up depressed Thai market

Asian Economic News, Sept 18, 2000

BANGKOK, Sept. 13 Kyodo

With stock prices remaining depressed at about one-fifth of their peak in 1994, the Stock Exchange of Thailand (SET) is reviewing basic problems and stepping up efforts to rebuild the market.

''The biggest problem of the SET is the market's structure,'' said SET Chairman Amaret Sila-on, referring to the limited base of investors.

Only 1% of domestic household savings goes into the SET while 88% goes into bank savings, he pointed out. This lack of interest from domestic investors means the market depends on foreign investors.

''With this lack of a basis, we cannot survive...It needs to be solved from there,'' he said.

Analysts echo Amaret, saying foreign investors have the main impact on the market and pointing out that they have been withdrawing their investments since the 1997 currency crisis because they are not sure about the direction of Thailand's economy and politics.

''Foreign investors are not sure whether listed companies in Thailand are capable of maintaining profits in the future,'' said Supavud Saicheua, executive vice president of Merill Lynch Phatra Securities Co.

Many analysts point out the market is not supported by long-term investment, but is highly speculative instead -- a major reason for its weakness and instability.

Another problem is that some companies, especially those performing well, have a low proportion of tradable shares because most of the companies' stocks are held by long-term shareholders and executives.

The lack of investment knowledge among the Thai public, and even among some local investors, is also a hurdle for the exchange, said Wapan Wongpanit, head of the research department of Siam Commercial Securities Co.

''Regulators should work closer with potential domestic investors, give them knowledge and provide them with useful information about investment,'' he said.

Established in 1975, the market saw the SET index peak in 1994 at more than 1,700, with daily trading worth about 40 billion baht. During the economic downturn triggered by the Asian currency crisis, however, the index fell to a low of 207, with daily trading at 808 million baht in 1998.

It has recovered somewhat since then but has never exceeded 550, and these days hovers around 280-330, with daily trading remaining below 3 billion baht.

It closed Monday at 290, with trading worth 2 billion baht.

Concerned about the movement of the index, a key indicator of economic health, the SET as well as the government's financial authorities launched late last month an industry-wide meeting to come up with initiatives to rebuild the market.

The meeting yielded a total of 23 measures to be achieved in the short-, medium- and long-term periods, SET President Vicharat Vichit-Vadakan said.

The short-term measures, to be achieved in a period of about six months, appear mainly to be increasing choices and products for investors.

They include offering exchange-traded funds, or mutual fund-like baskets of shares which investors could buy instead of individual stocks, thus diversifying risk.

Another is to introduce non-voting depository receipts (NVDRs) to increase investment options, which do not carry the restrictions of unit trusts for foreign institutional investors. Because of limits on investment by foreigners, NVDRs give them the choice of investing in the local section via a fund instead of paying the premium in the foreign section.

Stepping up marketing activities to educate possible domestic stock issuers about the benefits of listing -- to increase quality products on the exchange -- is also among the short-term measures.

Among medium-term measures, to be achieved in six to 18 months, is creating marketing strategies designed to increase the number of Thai stock investors and percentage of national savings invested in stocks, partly by spreading the message of the role such investing plays in building individual and national wealth.

Long-term measures, which are to be met after at least 18 months, are designed to modernize the mechanism of the exchange, such as moving to adopt a completely electronic trading system, thereby eliminating the expense and inconvenience involved in a paper-based settlement system.

With these measures, the SET hopes to raise the capitalization of the market to 60% of the country's gross domestic product from the current 30% within five years.

But analysts remain skeptical about the time frame.

''It is possible it will take longer than that, depending on the future government,'' said Sanpong Limthamrongkul, head of the research department of Sicco Securities Public Co., but adding the market would wake up when the country's political and economic situations become stable.