In many countries, exchange-traded funds (ETF) have become a tool that allows easier and more convenient investment, a greater variety of investment strategies, and efficient risk management if the fund is used along with other products.”Thailand is in a good state of development on ETFs, however, there remains room for improvement,” said chief executive officer Pattera Dilokrungthirapop.
Thailand has four exchange-traded funds (ETF): the TDEX, which is linked to the Stock Exchange of Thailand’s main index; an energy-linked ETF; ETF China; and ETF Gold, which was launched on August 8.
Thailand will likely follow this path of development in the future, with more ETFs linked to overseas markets and domestic commodities, Pattera said.
The benefit of ETFs, including ETF Gold, to the Kingdom is that “investors, especially retail ones, can buy these products in baht without foreign-exchange exposure”, she added.
However, challenges exist in following such a development path.
“One of our challenges is that we do not have variety. We cannot launch ETFs linked to other sectors aside from energy, as trading liquidity may not be sufficient. This is a challenge for Thailand,” the chief executive said.
Other key issues are how to launch ETFs linked to local commodities and how to bring ETFs from abroad for listing in Thailand. “These challenges require oversight by the Stock Exchange of Thailand,” she said.
An ETF Asean will become an interesting target, she suggested, as there is an Asean Index that will become a major theme for the region in the future.
A number of macro concerns and policy risks could also encourage exchange-traded funds (ETF) investment in Asian countries, not least in Thailand.
With a well-developed infrastructure, a free-enterprise economy, generally pro-investment policies, and strong export industries, Thailand enjoyed solid growth from 2000 to 2010
Financial markets have so far been accommodative of the government’s borrowing plans. The expansion of expenditures stemming from the stimulus packages combined with a decline in revenues due to the economic crisis has led to an increase in the fiscal deficit and, consequently, government debt ratios, which have reached 45 percent of GDP in September. Because Thailand entered the crisis with a relatively strong fiscal position, the cyclical increase in debt levels is not by itself a concern as long as Thailand’s historical fiscal performance is maintained in the future.
The impact of the global financial crisis on the Thai financial sector, on the other hand, has so far been limited. Although risk-sensitive indicators have risen since Lehman Brothers announced its bankruptcy on September 15 th they have been lower in Thailand compared to those in its East Asian peers – prior to the airport closure. Credit default swaps (CDS) spiked in line with global conditions and the stock market is down over 50 percent year-to-date. These were however, less than those in other East Asia economies.
Expansionary monetary has been employed to help to mitigate the impact of the global financial crisis. As inflation rose rapidly in the first half of the year, the Bank of Thailand (BOT) raised its policy rate by 0.5 percentage points to 3.75 percent. With inflation less of a concern in the coming year, the Bank of Thailand has lowered its policy rate from 3.75 percent to 2.75 percent in early December. Moreover, the Bank of Thailand also has the capacity to inject additional liquidity when needed. Commercial banks’ interest rates are expected to decline next year, but probably by not as much as the policy rate, as banks will be cautious about maintaining their liquidity.
The government in Thailand has implemented several measures in 2009 to mitigate the short run impact of rising inflation and falling incomes but long-term growth depends on a return to private investment. To raise returns given weak global demand, Thailand needs ensuring political stability and improving skills, human capital, and infrastructure services can help offset the decline in returns to private investment arising from lower world growth rates. “Software” (regulations, management, and quality of services) is as important as the “hardware” (infrastructure, subsidies).
Thai Kem Kaeng program is relatively quick-disbursing and focuses on the hardware (~70% is for construction and equipment). It compensates fall in on-budget investment next year but may not be sufficient to address constraints to long-term growth (which requires reforms to the software) and rebalancing the economy towards domestic demand.
However, measures for the medium term that will enable Thailand to poise itself for higher and sustainable growth as the global economy recovers in the next few years are no less important. While coping and mitigating with the impact of the financial crisis in the short-run, it is equally important for all stake holders in Thailand to prepare for a recovery in global demand and ensure sustainable growth thereafter. The global economy is projected to recover over the next few years and, thereafter competition will intensify.
So far, two tranches of the TKK Program (2009-2012) worth Bt350 billion (US$10.5 billion) have been released, with the first tranche in the amount of Bt200 billion and the second tranche of Bt150 billion. The focus of the TKK Program so far has been on quick disbursing investment projects as well as transfers and subsidies to local governments, communities, and farmers. A large share of the package is allocated to the agriculture and education sectors and community spending. Around two-thirds of the Bt350 billion or Bt230 billion is to be used for construction and equipment purchase, of which around three-quarters or Bt175 billion (1.9 percent of GDP) is expected to be disbursed in 2010, thus contributing to public investment.
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