Thai bourse aims to surpass Singapore's capitalisation by 2023

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Mr Pakorn hopes to raise SET's market cap by tapping the Thai corporate growth potential in Cambodia, Myanmar, Laos and Vietnam.
DECEMBER 17, 2019 - 5:50 AM

Bangkok

THE market capitalisation of the Stock Exchange of Thailand (SET) reached US$564 billion this year, clinching its rank as the second-biggest bourse in South-east Asia after only the Singapore Exchange (at US$689 billion) which it aims to surpass by 2023, if SET president Pakorn Peetathawatchai hits his target.

But Mr Pakorn, who became president in June 2018, is quick to stress that while SET sees SGX's market cap as a benchmark for the Bangkok bourse, he is not shooting to replace SGX as the region's prime, most liberalised securities hub.

"When I talk about catching up with Singapore, it doesn't mean that we become Singapore," he told a recent gathering of investors and journalists at the Foreign Correspondents Club of Thailand.

"SGX and SET are totally different. We have more manufacturing industries, while they are like a trading city. It's easier for them (SGX) to facilitate all the international products," Mr Pakorn said.

SET already surpassed SGX in terms of average daily trading in 2012, and as at October 2019, was trading at nearly twice Singapore's level. The Bangkok bourse has also surpassed SGX in terms of attracting initial public offerings (IPOs), which amounted to US$18.1 billion from 2014-2018 compared with Singapore's US$11.7 billion during the same period.

Given the comparative size of the Thai economy (the second-largest in South-east Asia), its strong and well-diversified private sector and a larger population of 67 million (there are 1.7 million retail trading accounts at SET), the higher stock-trading activity vis-a-vis SGX is hardly surprising.

SET's management hopes to continue leveraging that size advantage into higher capitalisation over the next four years, chiefly by exploiting Thailand's corporate growth potential in neighbouring countries Cambodia, Laos, Myanmar and Vietnam (CLMV) and expanding its own role in those emerging capital markets.

Thailand's own economy has been sluggish this year, with the latest forecast at 2.6 per cent growth, down from 4.1 per cent last year and from an earlier projection of 2.7-3.2 per cent growth set by the National Economic and Social Development Council, a government think tank.

But growth in the CLMV continues to be strong, in the 6-7 per cent range for all four countries that are enjoying the benefits of youthful populations, inflows of foreign direct investments and robust consumerism.

"We believe that the Thai economy is going to depend on the growth of the economies surrounding us," Mr Pakorn said.

Corporate Thailand shares this belief, and has been investing heavily in the CLMV region for the past decade, prompted in part by a low interest rate environment but also with an eye to Thailand's slowing, maturing economy and the brighter prospects of its neighbours.

Of the 220 listed SET companies that declare foreign revenues, 190 get their overseas income from Asean countries and of those, some 140 derive their revenues chiefly from the CLMV sub-region.

Thai multinationals went on a merger and acquisition spree between 2012 and 2018 when they invested more than US$80 billion abroad, with much of that money heading for Asean and the CLMV.

For example, Thai Beverage (ThaiBev), owned by Thai billionaire Charoen Sirivadhanabhakdi, spent US$4.8 billion in 2018 to purchase a controlling stake in Saigon Alcohol and Beer Beverages Corp, brewer of Vietnam's leading beer brand Saigon Beer.

Ironically, given SET's regional ambitions, the purchase provided no fillip for the Bangkok bourse since ThaiBev is listed in Singapore, after being blocked from doing so on SET by a puritanical Buddhist fringe group in Bangkok which staged street protests against the planned IPO.

SET has had better luck with the non-alcoholic Thai multinationals.

In July 2018, SET launched a CLMV Exposure Index to allow investors to tap Thai corporate profits in these emerging markets. To join the index, Thai listed companies must generate more than 10 per cent of their annual revenues from the CLMV countries or more than US$3.1 million.

To date, 35 Thai listed firms have been listed on the index, accounting for 26 per cent of the market cap of SET and Market Alternative Investment, offering an average dividend yield of 2.9 per cent.

SET is likewise hoping to encourage CLMV companies to eventually list on the Thai bourse, but thus far with limited success.

Mr Pakorn has been hinting at an imminent CLMV company IPO since he first took the job but none has emerged yet, although that may change in 2020.

"We expect a true listing from a country around us first thing next year," said Manpong Sananarong, SET's senior executive vice-president and head of the issuer marketing division. "It's coming next year but it's still a small amount."

To be fair, so far there has been only one foreign listing by a company from the CLMV region - Yoma Strategic Holdings on SGX.

Yoma, headed by Myanmar businessman Serge Pun who spent decades in the property business in Hong Kong, is one of the few professionally managed firms in Myanmar.

SET's efforts to cultivate the sub-region's capital markets are nothing new. The regional push arguably started a decade ago when the current Bank of Thailand governor Veerathai Santiprabphob was SET's chief strategy officer (2009-2013).

Mr Veerathai appointed former SET executive vice-president Chanitr Charnchainarong to travel to the CLMV, advising their governments on how to establish their own stock exchanges (free of charge).

"In those days, Singapore had this motto of 'Gateway to Asean', so where did that leave Thailand?" said Mr Chanitr, who is now an adviser to the Central Group. "Thailand is basically the connection to all the neighbouring countries so we have to play that role. To grow our neighbours is better for us."

Among other initiatives, the SET established a Financial Literacy programme and Capital Market Academy to help nurture capital-market awareness in the CLMV.

While Thai corporations have been quick to see the benefits of investing in the CLMV, it remains to be seen if all this spade work will result in CLMV companies listing on SET.

If they do, they are more likely to come from Cambodia, Laos and Myanmar than from Vietnam, where authorities are keen to promote their own capital market.

"Thailand would be ideal for a company from Cambodia or Laos to list, for one very simple reason - there is plenty of liquidity here," said Atikrai Chatikavanij, founder and portfolio manager of the Ton Poh Fund which chiefly invests in SET stocks.

The CLMV Exposure Index is just one of SET's recent innovations to bolster its investment options and broaden its appeal among investors, local and foreign.

In April, SET launched the SET Well-Being Index to stress Thailand's increasingly competitive companies in the service sector, and before that, it launched the Thailand Sustainability Investment Index for firms that pass sustainability standards, with some of them now issuing Green Bonds.

These separate indexes (CLMV, Well-Being and Sustainability) are not the only new offerings. The bourse has recently launched new quasi-fixed income products such as property funds, real estate investment trusts, infrastructure funds and various derivatives for futures options.

Behind all the novelty is a certain apprehension by the SET management that the bourse could lose its appeal to new digital trading formats in a less regulated environment.

"You can keep your customers with you if you have to supply them with more and more products, but once they leave you, it is all gone," said Mr Pakorn. "So that is our challenge."