Investment this year is fraught with risks. A number of factors, including rising interest rates, high inflation, an economic slowdown and most recently the banking crisis in the US and Europe, have influenced investment sentiment in stock markets since the beginning of 2023.
The Bangkok Post talked to Pakorn Peetathawatchai, president of the Stock Exchange of Thailand (SET), about his views on how the Thai stock market has coped with volatilities caused by the global economic slowdown and the banking debacle in the West.
How can Thai bourses handle global challenges and high market volatility?
Information disclosure is the key. The SET has tried to convey any information related to confidence in the stock market in a timely manner so that investors can digest the information to make investment decisions.
We cannot predict the direction of the stock market as several factors affect market sentiment. I recommend investors diversify their investments across various products and markets to cope with market volatility and global economic uncertainties. The SET is planning to increase investment products to serve investor demand.
As interest rates are on an upward trend, the cost of borrowing is higher. Yet the stock market remains a venue for companies to raise funds.
Smaller companies can opt for LiVE Exchange, our fundraising platform for small and medium-sized enterprises and startups. Bigger companies can choose the Market for Alternative Investment or the SET.
The SET prepared tools to facilitate investors using online systems, including an electronic payment system, mutual e-trading, online trading, e-open account services and a client verification system.
In addition, the SET is preparing to begin digital token trading through the Thai Digital Assets Exchange (TDX). Trading on the TDX is scheduled to start in the third quarter for investment and utility tokens.
The government recently agreed to waive withholding tax and value-added tax for digital token issuance, including investment tokens and utility tokens. Digital token fundraising or initial coin offerings (ICOs) can be facilitated through an initial public offering (IPO) portal company and must be approved by the Securities and Exchange Commission (SEC).
According to the SEC, 125 billion baht worth of digital token ICOs are in the pipeline for this year, up from about 30 billion in 2022.
How will market volatility affect IPOs this year?
Certainly poor market sentiment will affect IPOs this year. But some companies will speed up their listing on the bourse because they are ready and familiar with the existing rules, before the accounting criteria are changed in two years. Other firms may delay listing until the new accounting standard comes into effect.
Meanwhile, liquidity could dip as a result of the banking crisis in the West, while interest rate hikes could affect demand for IPOs.
The SET has tried its best to make the market less volatile and maintain liquidity in the market. If trading declines significantly, the Thai stock market will be less attractive.
In addition, the SET has worked with the Federation of Thai Capital Market Organizations to bring back long-term equity funds (LTFs). LTFs can invest in good fundamental stocks in times of crisis, helping to reduce extreme volatility.
The government should promote investments for long-term saving that help strengthen the Thai capital market and economy in the long term. As Thailand becomes an ageing society, savings are needed for retirees.
If stock markets in Asean have more complementary products linked to each other, that will help to increase trading liquidity in the long term. The combined Asean bourses have a size that is more attractive to investors. If we have convenient platforms allowing investors to trade from anywhere in the region, Asean stock markets will grow together over the long term.
The SET is interested in cross-listing products such as exchange-traded funds and depository receipts (DRs), which help investors diversify investment to other markets. Investors can access funds and products in Thailand and elsewhere in Southeast Asia. For example, if good stocks from Indonesia, Vietnam, the Philippines or Singapore can list here, or they take our stocks to list on their stock markets through DRs, that will increase quality products for investors.
How do you fix loopholes and prevent fraud?
While the regulations are already stringent, there can be loopholes. For example, non-voting depository receipts (NVDRs), which allow foreign investors to hold shares of Thai listed companies beyond foreign shareholding limits.
In the past, Thais never bought shares through NVDRs. But in the case of More Return Plc, local investors held NVDRs without reporting the trading volume, and that caused a problem.
We have to consider this issue and see how we can solve it. If Thais buy shares through NVDRs, they must report it, similar to buying shares on the main board. Otherwise we should not allow Thais to buy NVDRs. That's what we have to figure out.
The SET is also looking at ways to solve the problem of low free-float stocks. Some large-cap stocks, like Delta Electronics, carry a big weight on the overall stock market index. When Delta share prices are volatile, it affects the index significantly.
The SET is looking at this problem, but we have to be careful that any new rule will not hurt listed companies in general. The Delta case shows that existing regulations are ineffective. Its price fluctuated a lot in the past, to the point we had to put a caution sign on it, causing the SET50 index to plunge.
One option for dealing with low free-float stocks we are considering is changing the definition of free-float stocks to reduce hype. Another option is to create a new SET index that excludes low free-float, big-cap stocks like Delta.
The SET has no investigative authority, but it can ensure fair trading. What we are focusing on is disclosing information.
We can use market sanctions to penalise crime and fraud. Market decentralisation is a concept we want to implement in the future, while ensuring we communicate more with the public to make the system more efficient and cost-effective.
