Investors becoming more risk-averse
The ongoing volatility in the market arising from the US-China trade war, concerns about a recession, and other geopolitical events is making Thai investors more cautious and risk-averse in their investment outlook. This has resulted in them re-allocating their assets to more stable-yielding investment products.
Asset managers, on the other hand, are facing more intense competition in the market and are likely to suffer from reduced margins.
“We have seen investors flocking to multi-asset income-type products, active fixed-income funds, mixed funds and REITs (real estate investment trust) as they expect higher returns than safer short-term fixed-income funds, while the risk is not as much as the equity funds,” says Siriporn Sinacharoen, managing director of Krungsri Asset Management Co Ltd, which won the “Asset Management Company of Year – Thailand” at The Asset Triple A Asset Servicing Institutional Investor and Insurance Awards 2019.
Due to the economic slowdown, the Thai asset management industry has been adversely affected with Thai equity funds suffering net outflows of 5% from January to August 2019 based on Morningstar data.
The industry also suffered a major setback with the imposition of a 15% withholding tax on fixed-income term funds. In the first eight months of 2019, inflows into fixed-income term funds amounted to about 70 billion baht (US$2.3 billion), accounting for a huge chunk of the industry’s total assets under management (AUM).
“The tax on fixed-income term funds became effective in August and it will hit the term funds harder. As that only [took effect] in the past month, it did not affect inflows during the first seven months of the year. But it will affect fixed-income funds in the future,” says Thanate Aiyaranaparak, head of the corporate strategy department at Kasikorn Asset Management Co Ltd.
At present, Thai baht fixed-income funds earn about 2% per year. But with the 15% withholding tax, the returns will be reduced, making them less attractive to investors who prefer the stability of fixed-income funds.
“The strength of the Thai baht did not have a significant impact on Thai fixed-income and equity funds in terms of fund flows. However, we saw some outflows from foreign equity funds,” says Sinacharoen.
Going forward, the industry is also facing challenges from fintech companies, digital disruption and the advent of more sophisticated distribution channels.
For example, machine learning and artificial intelligence (AI) are starting to be used in portfolio management.
“Technology has created some new types of distribution channels, which allow for easier access to mutual funds and wider ranges of product choices,” Sinacharoen says.
Because of these developments, more foreign asset management companies and service providers are entering the Thai market providing greater competition for local Thai asset managers.
At present, foreign fund managers which have established a foothold in Thailand include Eastspring and Aberdeen Standard Life.
J.P. Morgan, Schroders, Blackrock, Janus Henderson, and PIMCO have designated local Thai representatives, while others such as Julius Baer, Lombard, Amundi, and Clearstream have entered into joint ventures with local partners.
To meet these challenges, Thai asset managers are expected to invest in more standardized online account opening or data-sharing platforms which would provide investors with easier access to fund investment and more real-time transactions. These platforms will also attract a wider group of clients, particularly younger investors.
Thai asset management companies are also expected to implement technology-driven services in the market by working with both financial and non-financial tech firms.
“This will allow Thai investors to invest in offshore funds easier, in a more straightforward process, and allow them to invest in multiple currencies,” Sinacharoen says.