The SCB CIO believes that reinstating Long-Term Equity Funds (LTFs) to promote long-term saving discipline would positively impact the Thai stock market. This measure is expected to reduce volatility from short selling and curb capital outflows driven by institutional investor selling pressure. Projections indicate an annual inflow of 40-50 billion baht into the Thai stock market. SCB CIO suggests that the Thai stock market is suitable for both long-term core investments and short-term opportunistic portfolios, supported by an anticipated economic upturn in the second half of the year. This improvement is expected to result from accelerated government budget disbursements in the third quarter, which will bolster corporate earnings growth. Additionally, a likely strengthening of the baht will further attract capital inflows.
Mr. Sornchai Suneta (CFA), First Executive Vice President of the Investment Office and Product Function, Wealth Banking Office at Siam Commercial Bank, has unveiled insights from the SCB Chief Investment Office (SCB CIO) regarding potential impacts on the Thai stock market. Should the Minister of Finance propose reinstating tax benefits for investing in Long-Term Equity Funds (LTFs), it is anticipated to be a boon for the market. This measure would mitigate capital outflows and alleviate selling pressure from domestic institutional investors.
Analyzing historical data, over the seven years preceding the expiration of tax benefits for LTF investments, annual inflows ranged between 50-70 billion baht. Even after accounting for redemptions, net investments remained substantial, averaging 20-30 billion baht annually. Conversely, upon the cessation of tax benefits in 2019, outflows from LTFs amounted to approximately 20 billion baht annually. Consequently, the overall balance in LTF funds, which stood at around 400 billion baht in 2019, dwindled significantly, with only 247 billion baht remaining as of April 2024. In the event that tax benefits for LTFs are reinstated, as envisaged by the Ministry of Finance, it is projected that annual inflows of approximately 40-50 billion baht will surge back into the Thai stock market. This resurgence in investment is expected to stem from both reallocated funds previously invested in foreign stock mutual funds and fresh capital infusion.
"If the conditions for investing in LTFs are reinstated such that the investment amounts eligible for tax benefits are not combined with Retirement Mutual Funds (RMFs), Super Savings Funds (SSFs), Provident Funds (PVDs), Government Pension Funds (GPFs), and retirement life insurance?with the total investment amount not exceeding 500,000 baht, and a separate LTF investment amount of 500,000 baht as in the past, along with maintaining the holding conditions of 5 years?it is expected that approximately 40-50 billion baht will be invested in the Thai stock market. This should rejuvenate the Thai stock market," said Mr. Sornchai.
Moreover, the reinstatement of LTFs is poised to diminish volatility in the Thai stock market index by curbing short selling activities, wherein investors borrow stocks with the anticipation of their decline in value to profit. In times of market downturns, investors can bolster the market by purchasing LTF funds. Additionally, LTFs are expected to enhance trading volume in the Thai stock market, thereby improving liquidity. This, in turn, fosters confidence among both domestic and foreign investors.
Regarding stocks poised to benefit from the resurgence of LTF funds, emphasis is placed on large-cap stocks within the SET100, representing the top 100 companies by market capitalization. These stocks typically exhibit robust trading liquidity, strong fundamentals, and are suitable for long-term investment strategies. Furthermore, several SET100 stocks offer attractive dividends. Historical data indicates that domestic institutional investors predominantly hold positions in these large-cap stocks.
The SCB CIO maintains a more positive outlook on investing in the Thai stock market. Beyond the anticipated return of LTF funds, several factors are expected to bolster the market: 1. Economic Growth: Thailand's GDP growth in the first quarter exceeded expectations, and the economy is likely to continue accelerating in the second half of the year; 2. Government Spending: Accelerated government budget disbursement in the third quarter is expected to stimulate domestic investment. 3. Corporate Performance: Profit estimates for listed companies are likely to be revised upwards this year due to economic recovery and increased international demand, following economic stimulus measures by the Chinese government; 4. Currency Strength: The baht is expected to appreciate in the second half of the year after the Federal Reserve (Fed) cuts interest rates; and 5. Valuation: The Thai stock market index is currently trading at an attractive level, with a forward price-to-earnings (P/E) ratio of 14.6x, which is lower than the five-year average and the lowest since the onset of the COVID-19 crisis.
Given these supportive factors, the SCB CIO recommends that investors consider Thai stock mutual funds for both core and opportunistic portfolios. For a core portfolio, a holding period of one year or more is suggested, while the opportunistic portfolio is suitable for those who can tolerate moderate to high risk. SCB CIO particularly recommends investing through the SCBTHAICGA fund, a Thai stock mutual fund with an active investment policy managed by a leading fund manager. This fund focuses on selecting stocks with strong governance and consideration for environmental and social factors. It invests in 30-50 companies across various industries to diversify portfolio risk.
Important Notice:
- Investing involves risk. Investors should understand the product characteristics, conditions, returns, and risks before deciding to invest.
- The SCBTHAICGA fund is classified as risk level 6, indicating a high level of risk.
- For additional information about master funds and mutual fund prospectuses, please visit the website of SCB Asset Management Company Limited.
- For more information, please contact the SCB Call Center at 02-777-7777.