Navigating the Thai capital market through the world’s emerging ‘new normal’

Navigating the Thai capital market through the world’s emerging ‘new normal’

The COVID-19 pandemic has brought unprecedented effects on every aspect of life, causing a severe economic downturn, numerous business closures, acute corporate instability, massive job losses, and much more. We are now facing all of these uncertainties and do not know when the health crisis will be over. The Stock Exchange of Thailand’s(SET) 13^th President Pakorn Peetathawatchai, leading one of Thailand’s notable organizations for the third year, has shared with us an integrated crisis management plan and business strategy under the SET vision as one of the key mechanisms to overcome the enormous challenges and drive the economy in the new normal way, toward sustainability.

What’s the difference between the Thai stock market today and in the past?

The Thai bourse’s landscape nowadays is different from that in the past in many dimensions. Tracing back to the early years of establishment, the focus was on building the infrastructure and foundation, covering all areas of operations, such as trading systems, a variety of products, trading channels and the investor base. It can be said that the 47-year-old Thai stock market has been developed continuously for the past four decades and is now progressing into its fifth decade with a strong and vigorous foundation in all aspects. Additionally, during the past four years, we have enhanced, augmented and boosted numerous areas to achieve our set goals.

First, our digitalization is end-to-end to improve the efficiency of our service standards. SET is actually notjust a stock exchange, but a platform available for everyone to utilize in scaling uptheir businesses in the capital market. All of these state-of-the art systems have enabledus to overcome the unpredictable challenges likethe COVID-19 pandemic effectively, resulting in all trading activities functioning smoothly, even without face-to-face interactions but in virtual operations, such as e-account opening, NDID Proxy, or e-shareholders’ meeting.

Second, we facilitated the ease of doing business in the capital market. SET has collaborated with the Securities Exchange Commission (SEC) and other related organizations in adjusting and simplifying rules and regulations to a notable extent and will continue to do so. The One Stop Service is a good example designed to facilitate and simplify listed companies’ fundraising process, while speeding up the listing process via e-listing of new common shares, depository receipts (DR), derivative warrants (DW), and exchange-traded fund (ETF) products, etc.

Third, to be globally competitive, we need Global Reach, providing investors with opportunities and alternatives to trading on international markets by issuing DR, DW, and ETF products, among others, to meet the needs of various investors. In addition, we are also seeking effective ways to draw companies from abroad, typically in CLMV countries, to gain more exposure in the Thai capital market. Moreover, we also aim to enhance the business potential of startups and SMEs via the existing SET-driven LiVE Platform initiative. 

Last but not least, the fruitful results from what we have continuously committed to in the past decade – the environmental, social and governance (ESG) issues – are vital to improving the sustainability practices of listed companies. It is indeed our key strength, and hard work pays off. We have lessons learned from the Tom Yum Kung financial crisis in 1997, when Thai listed companies overcame the crisis by means of fundraising overseas. If there was a lack of information disclosure and protection of shareholder’s rights, and the independent judgment of directors, these SET-listed firms would certainly fail to gain investor confidence. Thai firms have done remarkably well all along,as can be seen from the fact that SET was ranked among the top ten exchanges in Asia for corporate disclosures. In addition, a total of 21 Thai firms were listed on the Dow Jones Sustainability Indices (DJSI), the highest in ASEAN, and 7 of them were named industry leaders.

Sustainability has previously beenundervalued by most investors because it comes with extra costs but vague profitability. However, today ESG has come a long way. ESG aspects have now been analyzed, assessed and scored. It is noticeable that after the pandemic situation, all investor segmentsin the Thai stock market are keen incompanies with higher ESG scores, having discoveredcorrelations between the stock prices and ESG scores. Sustainabilityis here to stay, as a new trend in adding more value to listed companies. 

The Thai capital market: making meaningful progress

Before becoming the stock exchange that you see today, SET was primarily established in the form of a limited partnership entity and later on supported by the government as a key fundraising platform for businesses in addition to commercial banks.

SET has experienced four key turning points: first, at the time of the 1997 financial crisis, local banks ran out of liquidity for lending. Thai firms, as a result, looked to other options of funding both locally and abroad, resulting in a significant growth of the Thai capital market. Second, during 2002-2003, the fundraising on SET had risen substantially, attributing to the privatization scheme. Third, the next wave of growth occurred when Thai corporationsshowed high growth potential domestically in 2010. Fourth, was when they expanded business overseas. All of these four phases of change reflected the importance of capital. Likewise, the capital market has proved to be a pivotal fundraising source to boost growth.

It has been the 46 years full of interesting stories to tell. SET has helped strengthen economic stability for both the public and private sectors. In the future, SET will not only serve as a source of funding and investing, but will alsofunction as the capital market’s infrastructure — just about everything covering the systems of fundraising, stock trading, clearing and settlement, stock transactions and other related services such as account opening and money transfer by providing everyone with services that enable them to expand their own business. SET intends to be a central platform for everyone, notably based on trustworthiness valuable for all market participants. 

Key strengths of Thai bourse versus international bourses

We continue to develop and identify our unique selling points. Looking at our neighbors, the Singapore exchange claims to be the Gateway of Southeast Asia, whereas the Malaysia exchange aims to be the Capital of Shariah Finance, while the Hong Kong exchange positions itself as the Gateway to China. In my view, our key strength is the health sector, especially traditional sectors that include well-being businesses, such as in food, hotel, and tourism. Although the hospitality-related business sector has been hit hard by the pandemic, it remains the country’s most promising sector. Similarly, our healthcare business has shown strong growth potential, second to none. Furthermore, Thailand also has an unrivalled logistics network in the region and has invested significantly in infrastructure facilities these days such as in the Eastern Economic Corridor (EEC), and high-speed trains. We believe that new businesses relating to these infrastructure developments will certainly bring even more benefits. Besides, the investor base in the Thai stock market is large and diverse in terms of both retail and institutional investors.

As for a short-term selling point, there are value-added industries where we have enhanced our existing strengths. The long-term selling point our emphasis on connectivity, in line with the SET vision “To Make the Capital Market Work for Everyone”. Today, our so-called ‘Everyone’ is broader, not simply for investors or fund raisers, but it also extends to stakeholders via our innovative platforms, covering commercial banks, securities companies, asset management firms and even Fintech firms.

What do you think about the growing trend of Thai investors investing abroad?

It’s inevitable. Investors are likely to diversify their investment portfolio, seek higher returns, and manage their overall risks more efficiently. We don’t consider this trend direct competition. We try to focus on offering more internationalproducts, expanding the product line with linkages to capital markets globally, such as international securities, mutualfunds and digital assets. Therefore, we regularly promote products like DR, DW, ETF, and futures contracts with underlying foreign securities for easy trading at a low minimum trading price to attract both local and foreign investors. An interesting example is such DR or ETF that enables investors to buy fractional shares as low as hundreds of baht, which is expected to be available next year.

Adaptability and management skills to stay aheadamid theglobal pandemic and beyond

How to cope with the unprecedented and unexpected COVID-19 pandemic is a big question. What we have consistently undertaken is the continuous and efficient development of all operational processes, by leveraging digital technology both internally and externally as well as customer service. In a positive way, we look at the pandemic as a catalyst to accelerate digitalization at an incredible pace.

I have consistently emphasized the benefits of these two aspects for the organization and the team: Resilience and Flexibility.  The first one, resilience, implies toughness, durability, enduring volatility, recovering fast, which means the organization must have a diversified source of income. When affected by external factors, the impact will be minimal.The other aspect is flexibility which means we must be ready to adjust, all the time. We don’t know exactly if what we have done will be successful; and if it’s successful, how long it will last. But at the same time, we can’t just stay put and do nothing. I believe that by embracing these two qualities, the organization can adapt for both the short term and long term.

On top of this, I think an organization must have a bread-and-butter strategy that is coupled with a strategic move to foresee how operations will work in 3-5 years. If it doesn’t work, it can be a learning curve. For SET, after we have overcome this crisis, we have to plan the next steps. The next challenges for us currently include studying how to grow the current traditional market in tandem with the trendy cryptocurrency market which is appealing to investors.

Under the SET vision “To Make the Capital Market Work for Everyone”, what kind of support has SET provided to those affected by the crisis?

SET has reached out continuously and substantially to the society in many ways, not just during this pandemic-induced crisis, through SET’s own operations and the SET Foundation. Overall, our social contribution priorities areon children and youth, the elderly, the underprivileged, society as a whole, as well as the environment.

During the COVID pandemic in early 2020 until now, SET, in collaboration with the SET Foundation, has taken actions in many ways to improve the situation, society and the economy. We have donated THB 49.5 million (USD 1.48 million) to a total of 95 organizations, agencies, and foundations in Bangkok and provincial areas nationwide. Our contributions include providing operational support to 35 medical care units including main and field hospitals, and public health agencies through the provision of medical equipment, negative air pressure rooms, sterilizers, biosafety mobile units, as well as medical supplies. In addition, various support has been provided to needy communities via a total of 60 social service agencies, foundations and charity organizations. We will continue to support society for a good cause in the battle against this pandemic and beyond.

Looking into the future of a new world order, what’s the scenario or outlook for the Thai stock exchange? 

My view on the future of the organization in the capital market remains unchanged, with an outlook that is still promising, although functions could be changed in certain ways. The structure of the capital market will also be different. But the major challenge is how we can connect this traditional market and ensure a smooth transition to thedigital market. These five key tactical tools will still be vital and need to be steered intensively all along: technology, ease of doing business, global reach, startup & SME, and ESG.  

Please share some smart living tips for future generations

Two things: first, do your best when opportunities come, speed up and gain the insights, because what you do today may benefit you in the future. Second, visualize what you want to do or what you want to be, and then prepare well, study thoroughly, analyze well, and get ready to learn from people around you. Even if we think we are smart, there will always be people who are smarter and more competent than us. When the time comes, we will be able to grab those opportunities.