Although investing overseas carries foreign-exchange risks, the stronger baht today means investors are able to buy assets elsewhere at a lower price.
Thai investors are becoming much more cosmopolitan and are now keener on investing offshore, says Theeranat Rujimethapass, managing director of Tisco Asset Management.
He added that his company has seen a big increase in clients choosing to put their money in overseas mutual funds this year, and said more than 50% of his clients were now more interested in overseas markets than local ones.
Lingering political instability, leading to questions about the government’s ability to create and carry out policies, is one factor that has led to this major change, Mr Theeranat says. The recent Administrative Court decision to suspend permits for projects in the Map Ta Phut industrial estate on environmental grounds is a case in point.
“This is the theme that has led to Thai investors looking overseas, and there are a variety of choices available. Going abroad means there are stocks of different regions and countries to choose from.
“Aside from this, there are also bonds. For example, Thai investors can choose Australian bonds that are offering higher yields. There is also the opportunity to buy commodities – in Thailand we only have rice and rubber, but abroad you can get soya beans, coffee, cocoa, sugar … such a big variety.”
Mr Theeranat said many Thai investors are already familiar enough with Thai stocks to trade themselves without having to go through a mutual fund. However, investing overseas is more difficult for them.
He remarked that Thai and other Asian investors learned a lesson from the economic meltdown of 1997, and realise that after a crisis comes a rebound, and they are now keen to seize this opportunity.
Mr Theeranat and his team are encouraged by signs that the US economy is recovering and think it will bounce back faster than Europe. Tisco therefore offers a US equity fund.
Another equity fund invests in 12 Asia-Pacific countries outside of Japan to ride on anticipated high regional growth, as Asia was less affected by the global economic crisis and is benefiting from expansion in China and India.
The company also offers passive funds that feed the cash raised to exchange-traded funds (ETFs) of certain markets, for example the S&P 500 in the US. ETFs invest in a basket of stocks and try to track the performance of that market’s index. This makes it easy for Thai investors to follow the performance of the selected ETF because all they have to do is check the direction of the index.
Tisco Asset Management is also the only local company offering retirement mutual funds (RMFs) that invest abroad. The first one, Tisco China and India RMF, was introduced two years ago.
“The China and India fund grew from 10 million baht to 100 million baht in two years,” said Mr Theranant.
Other funds invest in commodities, including oil, on the rationale that oil prices will climb once the global economic recovery becomes more sustainable.
While most of Tisco’s funds invest in stocks, one is investing in short-term Australian government bonds of around three to four months. “Right now we have a positive outlook on Australia because the country trades a lot with Asia, especially China,” said Mr Theeranat.
As well, Australia recently became the first developed country to raise its benchmark interest rate after keeping rates very low – as have all other major central banks since the onset of the global slump in the third quarter of 2008.
Australian government bonds offer a return of 3.5-4%, compared with 0.5% or lower for similar short-term US government bonds and 1-1.5% for European issues.
Although investing overseas carries foreign-exchange risks, Mr Theeranat said the stronger baht today means investors are able to buy assets elsewhere at a lower price.
Looking ahead, Mr Theeranat expects the Thai stock market to climb next year, although it will continue to experience volatility. This is because stock prices here are low while the current average dividend yield is quite high compared to government bonds.
“I think the earnings of big companies should improve next year,” he said.
Sectors that are looking good include banks, which should benefit from increased government investment, while construction materials should benefit from new infrastructure projects. This increased activity means more consumption of energy, which could help stocks in the energy sector.
Mr Theeranat does not see a lot of gain from Thai government bonds and advises against holding long-term issues. This is something only institutional investors have the skills and resources to manage, he said.
“It is worrying if general investors hold bonds with maturities longer than two years.”
Where corporate bonds are concerned, investors have to assess the offered yield and compare it with the credit risk. “Don’t focus only on the yield, be careful because the bonds might come out with an interesting yield but their financial budget might not look good.”
While some think corporate bonds are in the riskiest asset class, Mr Theeranat pointed out that debt issued by very big firms tends to be stable.
He expects local interest rates to rise next year, but only slowly. “This could happen after the first half has passed. In the second half it could rise, but not very quickly – it will be a very careful increase.
“If the rates go up too quickly and strongly the economy could slide, so there is another year which necessitates investment because keeping money in the bank will produce very low rates.”