Bangkok--4 Dec--SET
Recent research, undertaken by The Stock Exchange of Thailand (SET), demonstrates that the Thai market would benefit overall from increased cross-border capital flow. Thailand has a comparatively lower level of capital account liberalization than other countries in the region. Liberalization would provide retail investors with greater diversification and more effective portfolio management, while intermediary institutions would increase their business. However findings indicated that capital liberalization should be undertaken cautiously, with an eye to maintaining economic stability.
SET’s latest research paper, entitled “Lessening Thailand’s capital flow restrictions: lessons learned from other markets”, noted that liberalization of cross-border capital flow would increase the size and liquidity of the market. The study focused on developed markets with free flow of capital, and developing markets which are in the process of liberalization, SET Senior Vice President Dr. Sethaput Suthiwart-narueput said.
“Compared to other countries in the region, Thailand has more restrictions on cross-border flow. Only China is stricter than Thailand. Malaysia, the Philippines and Indonesia are in freeing-up their markets. Capital liberalization would make for more competition, greater choice for investors, and boost market development,” Dr. Sethaput stated.
“Current restrictions in Thailand include preventing retail investors from direct investment in foreign securities. To do so, a Thai must work through a foreign investment fund (FIF). Also foreign companies cannot list and or raise funds on the Thai capital market, although Thai companies can be listed overseas,” Dr. Sethaput added.
China restricts retail investors from investing directly in foreign securities, as does Thailand, while Malaysia, the Philippines, and Indonesia are becoming more flexible. However, China, Malaysia, and the Philippines, like Thailand, prohibit foreign companies from listing and raising funds on local bourses.
“The report suggests that Thailand liberalize in a systematic manner. Retail investors should have more access to foreign securities. Initially, retail investors may not be knowledgeable about or experienced in foreign securities, so an alternative would be to use depository receipts (DR). At a later stage, Thailand can educate investors in preparation for full liberalization,” Dr. Sethaput declared.
Similarly, if foreign companies could raise funds through Thai securities, this would boost the size and liquidity of the market. In Hong Kong, foreign listed companies represent 16% of the market, but trading of these companies’ securities account for approximately 44% of total turnover. In Singapore, the daily turnover in foreign companies’ securities accounts for 18% of the total.
“Allowing foreign companies to raise funds through the Thai capital market for business expansion, whilst providing more room for Thai individuals to invest overseas, would restrain the baht from becoming too strong, as it is now,” Dr. Sethaput concluded.
For more information on SET Notes, please visit www.set.or.th/setresearch
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