Commuters walk on a pedestrian bridge in of Bangkok, Thailand, on Jan. 9, 2015. (Bloomberg Photo/Dario Pignatelli)

Thai Housewife’s Small-Cap Fever Masks Valuation Risk


JANUARY 15, 2015

Commuters walk on a pedestrian bridge in of Bangkok, Thailand, on Jan. 9, 2015. (Bloomberg Photo/Dario Pignatelli)

Truengjai Tinmathikul, a 60-year-old housewife in Bangkok, used to spend most of her days playing tennis. That was before Thailand’s market for small-capitalization shares began surging.

Truengjai, who knew nothing about equities until about six months ago, invested 300,000 baht ($9,148) after watching friends profit from the boom. Her own trades have yet to pan out, losing about 50 percent after she bought some of the market’s highest-flying stocks just as they peaked.

“I just hope I can also enjoy the good fortune,” said Truengjai, who cuts her tennis games short to track the market from 10 a.m. each weekday morning. “The stock market has been on a roll.”

Individuals are piling into Thailand’s small-caps stocks as returns from alternative investments dwindle and traders speculate the nation’s military government will revive economic growth. While the flood of new money sent the nation’s MAI Index to its biggest rally in a decade last year, the surge in valuations to all-time highs is spurring concern that inexperienced investors will get burned.

The Stock Exchange of Thailand, which runs the small-cap Market for Alternative Investment, is taking steps to curb speculation. It began requiring investors to pay cash upfront for the purchase of any stock under a so-called trading alert for unusual activity on Jan. 5, while investors have three days to transfer funds for most other stocks.

Too speculative

The bourse also said it will ban margin loans and suspend trading in cases of prolonged unusual activity. It has curbed transactions in 14 stocks this month through Jan. 13, according to the exchange’s website. That compares with none in the same period last year and five in the first 13 days of last month.

The small-cap gauge fell 0.1 percent yesterday to 753.76, about 1 percent below its all-time high. The measure has risen 7.7 percent this month, recouping a 3.7 percent drop in December. About 97 percent of investors in the MAI are individuals, exchange data show.

“Many small stocks are too speculative as the surging prices don’t justify their earnings,” said Montree Sornpaisarn, chief executive officer of Maybank Kim Eng Securities (Thailand), the nation’s biggest stock brokerage. “The new measures will help slow the speculative activities.”

The lack of attractive alternatives is driving individuals into small-caps, said Veera Vutthikongsirigool, the chief investment officer at Krung Thai Asset Management, which oversees about $18 billion.

Yingluck Shinawatra, Thailand’s former prime minister, center, performs the traditional Thai ‘wai’ greeting as she arrives at Parliament House in Bangkok on Jan. 9, 2015. (Bloomberg Photo/Dario Pignatelli)

Stable politics

Three-month deposits at four of the biggest banks in Thailand pay an average 1.1 percent annual interest, while the yield on 10-year government debt dropped to 2.4 percent on Jan. 13, a record low based on data compiled by Bloomberg going back to August 2000. Spot gold, a traditional store of wealth in the country of 67 million people, fell 1.2 percent in baht terms last year for its second straight annual loss.

Growing demand for equities also reflects individuals’ confidence in the nation’s growth outlook after Prime Minister Prayuth Chan-ocha seized power in a military coup in May, ending seven months of political turmoil. The government expects the economic expansion to accelerate to as much as 4.5 percent this year from about 1 percent in 2014.

“Retail investors are in need of better returns,” said Veera. “With politics more stable, and higher equity prices, retail investors just put their savings into the stock market, especially in several small-cap stocks.”

Volumes surge

The rally has boosted valuations to unprecedented levels. The MAI Index trades at 6.1 times net assets, a record premium over the 2.1 multiple for Thailand’s large-cap SET Index, according to data compiled by Bloomberg.

Ua Withya, a manufacturer of electricity transmission towers that was the MAI Index’s best performer last year, has jumped 32 percent this month through yesterday and is valued at 25 times net assets. The stock soared more than 1,500 percent last year even after a company filing showing its profit dropped 16 percent in the January-September period.

Stock trading on the MAI averaged 6.32 billion baht per day from July through December, compared with 1.3 billion baht in the first six months, according to stock exchange data. The number of Thai brokerage accounts climbed to an all-time high of 1.08 million at the end of November.

Optimism among local investors contrasts with selling by foreigners. Overseas money managers pulled a net $380 million from the stock market this year through Jan. 13, after unloading $1.1 billion of shares in 2014. Individuals have bought the equivalent of $111 million this year, according to data compiled by Bloomberg.

Truengjai, the housewife in Bangkok, is waiting for her holdings to rally before cashing out.

“The stocks I hold are still much lower than the purchase cost,” she said. “I am confident that they will rebound eventually.”