Thailand likely to fllow Singapore's ETF path

"The country [Thailand] is in a good state of development [on ETFs]; however, there remains room for improvement," said chief executive officer Pattera Dilokrungthirapop.

Thailand has four ETFs: the TDEX, which is linked to the Stock Exchange of Thailand's main index; an energy-linked ETF; ETF China; and ETF Gold, which was launched on August 8.

In many countries, ETFs have become a tool that allows easier and more convenient investment, a greater variety of investment strategies, and efficient risk management if the fund is used along with other products.

Singapore's stock exchange has 84 ETFs, including ETF China, ETF India and those linked to money markets and commodities.

Thailand will likely follow this path of development in the future, with more ETFs linked to overseas markets and domestic commodities, Pattera said.

The benefit of ETFs, including ETF Gold, to the Kingdom is that "investors, especially retail ones, can buy these products in baht without foreign-exchange exposure", she added.

However, challenges exist in following such a development path.

"One of our challenges is that we do not have variety. We cannot launch ETFs linked to other sectors aside from energy, as trading liquidity may not be sufficient. This is a challenge for Thailand," the chief executive said.

Other key issues are how to launch ETFs linked to local commodities and how to bring ETFs from abroad for listing in Thailand. "These challenges require oversight by the Stock Exchange of Thailand," she said.

An ETF Asean will become an interesting target, she suggested, as there is an Asean Index that will become a major theme for the region in the future.

A number of macro concerns and policy risks could also encourage ETF investment in Asian countries, not least in Thailand.

"We really don't know which sectors and which stocks will be affected, or the macro sort of effects on the broader view of the markets," said Joanne Goh, senior equity strategist and vice president for Group Research at DBS Bank in Singapore. "As the macros wind around, there is a good opportunity to get in and out of the markets easily [through ETFs] without any stock-picking."

The number of ETFs has picked up sharply in Asia, she said.

In 2010, there were close to 250 ETFs/ETPs (exchange-traded products) listed in the Asia-Pacific region, with combined assets of more than US$70 billion (about Bt2.1 trillion), according to Pinnacle Group International. Globally, the overall size of ETFs jumped from $74.3 billion in 2001 to $1.3 trillion last year.

In the United States and Europe, some portfolio managers usually have about 70 per cent of their investment as a core holding, which normally invests in ETFs, and the rest for alpha investment, Goh said. Alpha means above-market performance through stock-picking.

"It saves time for rebalancing and, with more efficient time, allows them to concentrate more on the 30-per-cent alpha. It is not the trend yet in Asia but hopefully, it will be in the future," the strategist added.