Biggest Thai Fund to Boost Foreign Buying on Local Slump

Updated on

Thailand’s biggest money manager will increase investment in global stocks after a slump in domestic assets hurt returns this year.

The Social Security Office will buy 3.5 billion baht ($100 million) of equities in Europe, Japan and Southeast Asia by the end of December, said Win Phromphaet, the fund’s head of investment. The manager of $37 billion in pension contributions said he will invest in equity funds that buy shares of companies paying stable dividends.

“Foreign shares are expected to offer remarkable returns of at least 10 percent in 2016, while Thai equities will remain sluggish,” Win said in an interview on Tuesday. “The cash contributions keep coming and parking them in short-term bonds is offering low returns.”

Falling domestic debt yields and a sluggish equity market cut returns by the nation’s biggest government pension fund this year to 3 percent from 9 percent in 2014. Its holdings of overseas stocks returned 12 percent in the same period, fueled by gains in Japanese shares.

The Thai benchmark equity index dropped 5.4 percent this year through Wednesday as foreigners sold shares amid lackluster earnings growth and falling exports. The yield on the five-year sovereign bond has fallen 27 basis points in the same period to 2.22 percent, data from the Thai Bond Market Association show. The Stoxx Europe 600 Index and Japan’s Topix have climbed more than 15 percent.

The SET Index jumped 1.6 percent at the close on Friday, its sharpest advance since Jan. 23. The MSCI Asia Pacific Index gained 0.5 percent.

The SSO may still add to domestic equity holdings after valuations dropped to “very attractive” levels, he said.

Approval Sought

The SET Index trades at 13.5 times estimated 12-month earnings, compared with this year’s peak valuation of 15.4 times on Feb. 6, according to data compiled by Bloomberg. Overseas investors have pulled a net $1.32 billion from Thai stocks this year, the only Asian market tracked by Bloomberg to see outflows.

The SSO, which manages pension contributions from about 14 million employees at private companies and businesses, is seeking the board’s approval for more funds to invest in international equities, Win said.

It plans to raise exposure to overseas debt and stocks to 26 percent of total assets by 2018 from 3 percent last year. At the same time, domestic bond holdings will be cut by a third to about 56 percent.

“Without diversifying investments for higher returns, SSO’s assets are unlikely to be enough for higher pension payments for the retiring members in a few decades,” said Win.

The fund expects new pension contributions to swell its assets by 100 billion baht in the second half of 2015, and will invest most of those funds in local government bonds, he said. Total assets are expected to jump to 2 trillion baht in 2018.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE