THAILAND: Trouble hits Thailand

Trouble_in_ThailandThailand has been troubled by violent political unrest in recent years. Stefanie Eschenbacher finds asset managers are expanding nevertheless.

Thailand is at risk of renewed turmoil, threatening credit fundamentals. But there is potential for asset managers.

Linda Csellak, the head of Asia Pacific equities at Manulife Asset Management, says political instability has been the most important credit weakness for Thailand in the past years.

“Recent political unrest has disrupted the government’s structural reform policies and hampered infrastructure investment, both of which could undermine the potential growth rate in the long run,” she says. “The Thai economy is strong and well-balanced between agricultural and industrial sectors. We therefore see a minimal long-term impact from political unrest on the stock market.”

Earlier this year, its Thai affiliate launched the Manulife Strength-Asian Small Cap Equity Foreign Investment Fund, which feeds into existing products in the local market.

Foreign investment funds may be the biggest growth potential for asset managers. Csellak highlights this market has grown to Thai Baht 387.8 billion ($12.6 billion), or 19% of mutual fund assets, since the government allowed Thai investors to invest offshore via locally set-up mutual funds in 2002.

Csellak says they offer clients an opportunity to diversify their portfolio because they provide access to foreign markets.

“We aim to expand our distribution capabilities, focusing more on the mass affluent to affluent client segment through direct sales and distribution partners,” she says. “In addition, we plan to approach more foreign banks as we are seeing expansion of branches throughout Thailand.”

Asset managers cannot sell offshore funds into the Thai market, which is dominated by bank-affiliated asset managers. Unlike in Hong Kong and Singapore, asset managers need to have an onshore presence.

Aberdeen Asset Management bought into a joint venture with an insurance company seven years ago and now manages 19 locally domiciled funds. The range includes Thai equity funds, private equity funds and foreign feeder funds that feed into Luxembourg-domiciled funds.

The focus on foreign investment funds reflects Aberdeen’s “deliberate position” in the market, says Patrick Corfe, business development director.

Corfe and Csellak report lower risk funds, mainly money market and short-term fixed income funds, have been popular among Thai investors.

The Thai government says it plans to reduce the government guarantee on bank deposits from unlimited to Thai Baht 1 million per client by August this year. “This will push Thai investors to seek alternative investment products and potentially seek diversification,” says Csellak.

“We see deposits being shifted firstly to lower risk money market funds, as a substitute to bank deposits, and eventually diversifying to products such as equity funds or foreign investment funds once investors become more experienced.”

©2012 funds global

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