Los primeros años de Asoinca: el liberalismo, el decreto 2277 y el

The role of minority shareholders in the market is indicated by the number of individual investors and their behaviours.

Table 3.2 Number of shareholders by shareholder types

(people)

Types Dec 2006 Dec 2007 Dec 2008

Thai individuals 902,545 898,958 699,455

Foreign individuals 23,869 24,798 20,997

Thai juristic persons 17,906 17,918 14,135

Foreign juristic persons 5,051 5,463 4,154

Source: Thailand Securities Depository Company Limited

As Table 3.2 shows, approximately only 1.4 per cent of the total Thai population invests in the stock market.90 The overall number of individual investors is, in fact, gradually declining. The Thai SEC conducted a survey on small investors regarding an understanding of capital market investment and found that 51 per cent of the

89 _{At the beginning, the Thai secondary market for bonds was organised in 1994 when the Association of}

Securities Companies (ASCO) set up a Bond Dealers Club (BDC). In 1998 the Club had been reorganised as a separate legal entity, known as the Thai Bond Dealing Centre (ThaiBCD) with permission from the Thai SEC as a licensed bond market. In 2004, due to a large number of bonds issued by the Thai government and financial institutions, the government initiated reform of the Thai bond market. The ThaiBCD therefore had sold its newly developed electronic trading platform to the SET and changed its status and granted the licence of a securities-related association under the Securities Act named as the Thai Bond Market Association (ThaiBMA) in September 2005. ThaiBMA: About Us (2009) The Thai Bond Market Association <http://www.thaibma.or.th/aboutus/aboutus.html> at 20 March 2012.

90 _{Based on the records of 2010, Thailand’s population is about 64 million. National Statistical Office,}

90 respondents were reluctant to invest in securities because of possible loss.91 A quarter of respondents admitted that they did not know what securities were.92 The same study revealed that almost 50 per cent of respondents generally understood the products they invested in while 32.5 per cent of respondents had a very limited knowledge of them.93 The findings explain why Thai individuals prefer depositing their savings in financial institutions rather than in holding securities. Besides, as the Thai government bailed out many financial institutions during the 1997 financial crisis, the impression has been created that the government implicitly guaranteed such deposits.94

In addition to the limited understanding of Thai retail investors, the schemes that encourage the distribution of shares to the public are rare. The first government fund, known as Vayupak fund, was set up in 2003.95 The fundraising was used to purchase the government’s assets. The government then used this money to repay some of its debts. Repayment of investment in the fund is due in 2013 but the government still has no clear policy on extending it or setting up another.96 Some state-owned organisations in some industries, such as energy, telecommunications, and transportation, have been privatised. However, the previous privatisations have not been proved successful. The criticisms of privatisations include a lack of consideration of the consequences to the

91

Corporate Strategy Department SEC, 'Behaviour, Need, Understanding, and Attitude of Thai Investors' (SEC, May 2002). In 2010, a similar survey was conducted. The result affirmed that the main reason that most participants did not invest in financial products was the scare of possible loss. TNS Research International, 'Opportunities in Educating Retail Investors' (Securities and Exchange Commission, 2010) <http://www.sec.or.th/infocenter/report/Content_0000000273.jsp?categoryID=CAT0000291&lang=th> at 20 March 2012.

92 _{Corporate Strategy Department SEC, above n 91.}

93 _{Ibid. The recent study found that 54 per cent of the investors claimed that they were somewhat familiar}

with all the products they invested in and 20 per cent of them were slightly familiar with the invested products. TNS Research International, above n 91.

94 _{In August 2008 the Deposit Insurance Act came into effect. The Act established a Deposit Insurance}

Agency to guarantee depositors’ funds in the event of a bank bankruptcy. The Agency will pay each depositor all monies shown in every account with a maximum payment of 1 million baht. During the first four years of operation of the Act, the payments to depositors will be secured as follows:

The first year: the full amount as shown in the account. The second year: a maximum payment of 100 million baht. The third year: a maximum payment of 50 million baht. The fourth year: a maximum payment of 10 million baht. From the fifth year: a maximum payment of 1 million baht.

95 _{Veerapong Ramangkul, 'Vayupak Fund: The Financial Innovation', Bangkok Business (Bangkok), 14}

July 2003, 2 <http://www.nidambe11.net/ekonomiz/2003q3/article2003july14p3.htm> at 20 March 2012; 'The Core of Vayupak Fund', Bangkok Business (Bangkok), 12 November 2003.

96 _{'State Enterprise Policy Office Proposes Three Approaches Dealing with Vayupak Fund', Thairath}

91 public and a lack of transparency.97 Given the resistance of the public, privatisation of state-owned enterprises in other areas, such as electricity and water supplies, has been frozen.

There are changes in the proportion of shares held by institutional and individual shareholders. The first factor is the increasing size of statutory funds. Together with their employers, employees in both public and private sectors are required to distribute some of their wages into statutory funds. The purpose of these funds is to help employees to save some of their salary to be used for different events, such as sickness, unemployment, or retirement. By law, the savings may be used as investments in specified stocks and debentures. The increasing size of statutory funds makes these funds the major equity holders. Secondly, since 2008 the government has encouraged retail investors to invest in long-term mutual funds by granting some tax benefits. It may attract current and new individual shareholders to invest more in mutual funds. These two factors may finally create a tradition of retail investing in Thailand.

The proportion of shares held by various types of shareholders also revealed the limited influence of retail investors in the Thai stock market.

Table 3.3 Holding of equity (2002)

Types of shareholders Per cent of equity

Social securities funds 0.01

Pension funds 0.08 Provident funds 0.24 Foreign funds 0.55 Insurance companies 1.06 Mutual funds 1.3 Commercial banks 5.16

Other organisations, such as foundations and cooperatives 11

Other financial institutions, such as securities companies 18

Retail investors 21

Corporations 42

Source: Prasarn Trairatvorakul, The Necessity and Policy Guidelines to Develop the Thai Capital Market (2002–2003)

92 As the above table shows, Trairatvorakul found that the largest strategic investors in the Thai stock market were corporations. The shareholding of this group accounted for 42 per cent of the total market. Retail investors occupied approximately 20 per cent of the market. Triratvorakul explained that institutional investors were unlikely to invest in the stock market because shares investment was considered high-risk. These institutional investors therefore preferred to invest in low-risk securities, such as debentures.

Trairatvorakul further researched the total turnover of local retail, local institutional and foreign investors compared with their holding of equity.

Figure 3.1 Holding of equity and market turnover compared (2002)

Source: Prasarn Trairatvorakul, The Necessity and Policy Guidelines to Develop the Thai Capital Market (2002–2003)

He found that although retail investors held approximately 20 per cent of all equity securities, they traded actively. The total value of securities traded by this group was 75 per cent of the whole market.98 By comparison, domestic institutional investors held around 55 per cent of the total value of the market but the value of securities they traded 98 _{Trairatvorakul, above n 77, 103–4.} 20 72 55 5 25 23

Holding of equity Market turnover

Foreign investors Local companies and institutional investors Local retail investors

93 was only 5 per cent of the total market value.99 This reflects the investment behaviour of Thai retail investors. They invest in the market as short-term speculators rather than long-term investors.100

In all, the research, while dated, shows that the development of the Thai stock market has been mainly influenced by the government. The government established and developed it. Despite the possible changes, the role of individual investors in the Thai capital market has not been evident. They have limited understanding of the equity market and prefer depositing their savings with a bank. The behaviour of current investors also does not support the growth of the market.