A flurry of initial public offerings in Thailand's capital markets

The Thai capital markets have performed poorly in recent years in terms of the benchmark, with the Stock Exchange of Thailand (SET) Index trading below the recent peak hit in 2013 as of early 2016. The markets have nevertheless been developing in ways that suggest long-term strength and regional significance.

Thailand has been the initial public offering (IPO) capital of South-east Asia, and volumes achieved have been higher than those in nearby countries. The new government and the regulators are also taking steps to improve trading by introducing new instruments and vehicles, encouraging foreign listings and by providing indirect support through economic stimulus. The market did not take off and hold its gains as the political situation stabilised following the 2014 coup, as was hoped, but considerable progress has been made in the background.

History & Standing

Thailand’s stock exchange traces its history back to 1962, to a privately owned enterprise that became the Bangkok Stock Exchange in 1963. That exchange experienced low turnover and was closed in the early 1970s. The SET was formed in 1975 (first known as the Securities Exchange of Thailand). The bourse’s all-time high was set in 1994, when the index hit 1789 points.

The market capitalisation of the SET was $356bn as of the end of January 2016, according to the World Federation of Exchanges. This is lower than some of its neighbours. As of the end of January 2016, Bursa Malaysia was at $389bn and the Singapore Exchange was worth $601bn. Thailand is, however, ahead of the Philippine Stock Exchange ($224bn) and the New Zealand Exchange ($69bn) and the Indonesia Stock Exchange (approximately $353bn).

Volume Leader

In terms of trading volumes, the Thai market has been consistently outperforming many of its sizeable neighbours. In January 2016, over $23bn of shares changed hands on the SET. That compares with just over $9bn on Bursa Malaysia, just over $4bn on the Indonesia Stock Exchange and $16bn on the Singapore Exchange as of December 2015.

Trading volume for the full-year 2015 averaged about BT45bn ($1.4bn) a day, the highest in ASEAN. According to the SET, the bourse has topped the region in terms of volume for four consecutive years.

The Thai bond market has played a growing role in the country and in its capital markets since the Asian financial crisis in 1997. The local currency bond market as a percentage of GDP rose from under 10% to over 70% today. Since 2014, growth in the bond market overall has slowed, though activity in corporate bonds has increased. Companies looking to raise funds have been active issuers while investors looking for yield have been active buyers.

After The Coup

The market rose after the May 2014 coup, largely on the hope that the new administration would be able to bring stability, fix some fundamental problems in the economy and stimulate growth. But after an initial rise, share prices started to decline. It has been up and down for a number of years. The SET Index went from 1631 in mid-2013 down to 1224.62 in the first days of 2014. It then rebounded on optimism surrounding the 2014 coup, and hit 1615.89 in early 2015. As threats of US interest rate rises began to take their toll, the index declined again back to recent lows, before rebounding somewhat in the new year. The weak performance was in part due to selling by foreign investors. Through early August 2015 foreigners were unloading shares on a net basis. As of August 7, they had sold a net $1.46bn worth of Thai equities for the year.

Domestic institutions have been moving out of Thailand as well. The Social Security Office, Thailand’s biggest institutional investor, said that it will be buying more foreign shares in an effort to diversify away from the sluggish SET. In July 2015 it was reported that the office would be buying about BT3.5bn ($105.4m) of equities in South-east Asia, Europe and Japan. It is looking for higher-yielding stocks to help it make up for the low returns in the domestic market, and in general is seeking to shift to more “risky” assets.


Some key international investors remain positive on the country despite the periodic outflows. Mark Mobius, executive chairman of Templeton Emerging Markets Group and a longtime opinion leader on international investment, for example, has remained bullish on the country and its equities through recent periods of concern, citing the resilience of Thailand in the past following major setbacks. The general sense is that the country has made it through the rough patch post-coup and bounced back impressively after the attack on Erawan Shrine. Mobius is particularly excited about infrastructure spending being proposed by the government.

A number of local institutions also remain bullish. SCB Securities has been anticipating an upswing due to a recovering economy and a rise in tourism, in addition to an increase in government spending. Investor confidence, however, has not been good. In August 2015, it hit a 14-month low as a result of economic slowdown. The Federation of Thai Capital Market Organisations survey index dropped from 98.28 to 57.27 in the three months ending that August, indicating a change in sentiment from neutral to bearish. For foreign institutions, the index was at 62.5 points.


Thailand’s market infrastructure is strong and improving. The exchange is settling T+3 (fixed income T+2), and cash settlement is handled by BAHTNET on a real-time gross settlement basis. The Thailand Securities Depository acts as the central securities depositary, while the Thailand Clearing House, a subsidiary of the exchange founded in 2004, is the central counter-party for all trading on the bourse – including the SET itself, the Market for Alternative Investments, Bond Electronic Exchange and Thailand Futures Exchange (TFEX). As such, it guarantees the settlement of all trades even in the event of default on the part of one of the participants.

In August 2015 the SET initiated straight-through processing. It would also like to make additional improvements. The exchange hopes to move to the international standard of delivery-versus-payment (DvP) – which does not yet exist in the broad market – real-time depository registration, a 100% scripless system and T+2. The market requires pre-matching, and the system does not allow for overdrawn accounts. DvP and shorter settlement cycles (T+1 or T+2) can be accomplished on large orders, but must be prearranged with the broker. Large orders would include stock trades over BƒT50m ($1.5m) in size.

A Clearing Fund protects investors in the event that one of the brokers defaults. A Clearing Reserve Fund also exists with a balance of BT2bn ($60.2m). It can only be tapped if all other sources of funds are exhausted. There is also the Securities Investor Protection Fund, which covers the assets of an investor held in custody by an intermediary. Coverage is limited to BT1m ($30,100) per brokerage account.

Futures Exchanges

In early 2016 the TFEX and the Agricultural Futures Exchange of Thailand (AFET) merged. In the lead up to the merger, market officials said the combination would help investors and reduce risk. It was also seen improving trading. Because the agricultural futures market has been dominated by people seeking to hedge their physical positions, and because there have not usually been enough speculators trading, the market was not very efficient. The TFEX has far more brokers and a larger pool of non-hedging investors, and it should add liquidity to the market for agricultural futures.

In the transaction, the AFET became part of the TFEX, which prior to the combination had dealt in the trading of futures except those related to agriculture. The AFET had never made money, and trading in some of the major products, such as rice and tapioca, have been thin due to government intervention.

Trading of agricultural commodities on the TFEX began in early 2016, when the RSS3 Futures for ribbed smoked rubber sheet became active. For a time, the trading of rubber will take place in both markets.

Gold Exchange

In early 2015 the SET said it would be opening its first physical gold exchange, with seven gold futures dealers agreeing to create the exchange. Together the dealers control 90% of the gold market, both physical and paper, in the country. They are Globlex Holding Management, Classic Gold Futures, GT Gold Bullion, YLG Group, Ausiris, MTS Gold and Hua Seng Heng Commoditas, according to a report in the Bangkok Post. The move came as volumes dropped due to the decline in the price of gold and with the opening of the Singapore spot gold market, inaugurated in late 2014. The idea was originally suggested in 2013 by the Bank of Thailand, which saw a discrepancy between the spot and futures price of the metal. TFEX started in 2014 to allow for the settlement of contracts in physical gold rather than in cash.

“The physical gold trade continues to dominate the market over gold futures, despite a drive by financial authorities to increase derivatives trading volume,” Pawan Nawawattanasub, CEO of YLG Bullion International, told OBG. “Thais have historically been accustomed to physical trade as gold is an asset considered easy to liquidate when necessary, serving as a store of value during financial uncertainty.”

Meanwhile, according to Tanarat Pasawongse, managing director of Hua Seng Heng Gold Futures, the Thai market is unlikely to introduce any new metals futures in the short term. “Silver is subject to value-added tax, unlike gold which is exempt, while metals such as platinum and palladium often take months to arrive in physical form from refineries.”

Foreign Issues

Thailand has become open to, and generally supportive of, foreign securities issues in the domestic market. Indeed, starting in 2016 the Ministry of Finance said it would consider applications for foreign issuers of baht-denominated bonds on a monthly basis rather than just three times a year. It also committed to speeding the approval process. Regional sovereigns have been looking toward Thailand as a market in which to issue bonds. In 2013 Laos sold its first international bond in Thailand, and the bond was denominated in baht. The issue was only BT1.5bn ($45.2m) in size, but it was seen as a sign of regional market integration. It was also the first sovereign bond to be issued in Thailand. Laos has sold a number of batches of debt in Thailand since then, its latest in June 2015. That issue was the country’s largest sovereign bond ever, at BT12bn ($361.2m).

In July 2014 the Securities and Exchange Commission (SEC) said it was considering the admission of foreign companies to the SET. Primary, secondary and dual listings are being contemplated. A number of restrictions will be put into place on these listings. The companies must be from jurisdictions in which the regulators cooperate with the Thai SEC, at least two Thai residents must serve on the company’s board, accounts must be prepared according to Thai accounting standards and the auditor of these accounts must be on the SEC approved list, and the financial advisor must also be approved by the SEC.

Additionally, the SET has proposed that investors be permitted to settle trades in foreign currencies. In 2015 it approached the Bank of Thailand about the idea in the hope that the move would increase participation by foreign investors. Currencies considered by the SET included the dollar and the renminbi.

Because of the successful IPOs and high level of trading, Thailand’s capital markets are increasingly seen as some of the more attractive in ASEAN. The aggressive moves on foreign listings may further confirm the country’s leadership position and help Thailand challenge the Singapore market.

Developments & Reforms

The regulators have been active in a number of other areas, fine-tuning and advancing existing rules to keep the market competitive and up-to-date. Significantly, the SEC is working to create a framework for the operation of hedge funds. According to a September 2015 draft, these vehicles would be limited to investors with a net worth of more than BT70m ($2.1m) or a portfolio of more than BT20m ($602,000) in assets to qualify.

The SEC is motivated as much by competition for capital as it is by a desire to add another asset class. The regulators say that Thai investors are increasingly able to access hedge fund products overseas, and the thought is that they should be given the opportunity to buy into such vehicles at home. The hope is that those pursuing high yields will leave some funds in the domestic market, where the fund management sector has traditionally been conservative and not meeting the needs of more aggressive investors.

In November 2015 long-term equity fund incentives were extended for three more years from 2016. Taxpayers are allowed to invest up to 15% of their income, or BT500,000 ($15,100) a year, in these funds. Both the income and appreciation remain tax-free, but investors will have to hold the funds for a minimum of five full years. The government believes that the programme will help support the stock market.

Win Udomrachtavanich, the CEO of One Asset Management, told OBG, “Given Thailand’s demographic trends of a growing middle class and an ageing population, both the public and private sectors are investing heavily in investor education programmes to stimulate the potential for expanded asset management provision nationwide.”


The SEC is expected to approve an internet site for crowdfunding, the hope being that this will help small companies obtain financing despite not yet being bankable. The regulator said that 10 portals had expressed interest in becoming crowdfunding platforms. Fairly tight criteria are being considered. The SET has also set a number of other reform and upgrading goals for 2016. It plans to increase listings (with a full-year goal of BT270bn, or $8.1bn), introduce new indexes (such as a gold futures index), promote retirement plans, expand the investor base (with a goal of 110,000 new retail investors) and develop the relevant human resources.


A number of incremental steps have been taken to improve capital markets integration in ASEAN. However, capital markets integration within the region has taken place slowly. In recent years, regional stock indexes have been created and Deutsche Bank was chosen to develop a regional settlement system. But ASEAN remains a collection of individual markets cooperating on a case-by-case basis rather than a single market. The ASEAN Trading Link, a key development for the region, has been stuck for some time with just three members (Thailand, Malaysia and Singapore) and with little actual trade being conducted through the link. The Philippines and Vietnam are interested in joining, but Indonesia has so far been hesitant to get involved, citing concern about the lack of a dispute settlement system.

Among the countries involved, the lack of post-trade infrastructure appears to be holding back a meaningful increase in activity. The link has also suffered from fear that a truly integrated market would result in trading naturally gravitating toward the most liquid markets at the expense of those less advanced.

Observers have noted that further development will involve reform at the country level and that regional efforts can do little to advance integration. From here on out progress will go about as fast as the slowest and least reformed member, suggesting that the current stall could take some time to be resolved.


Thailand is transforming from a large but secondary player in the region to a market of focus. The high level of turnover and the steady corporate activity are generating considerable interest and the right conditions for rapid development. The country has already become the market of choice for issuers in the Mekong region, and is starting to get noticed by the international investment community as being more than just a small local market.

If reforms continue, and if the new government is able to keep the markets open and fair, Thailand may well find itself playing a new and significant role in the development of the ASEAN region’s capital markets.

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The Report: Thailand 2016

Capital Markets chapter from The Report: Thailand 2016

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