Thailand’s central bank is set to invest 3-4% – and possibly more – of its reserves in international stock markets, following a law change ratified by the government on Tuesday.
The Bank of Thailand has initially proposed that it be allowed to allocate up to 4% ($6.8 billion) of its $170 billion in reserves into foreign equities. However, a spokesman for the bank told AsianInvestor it may recommend a higher allocation once parliamentary approval has been granted. No timescale has been set for the plan to be implemented.
BoT governor Veerathai Santiprabhob said the aim was to try to stabilise investment returns amid increased volatility in financial markets as a whole.
The amended law still needs the parliamentary green light, but given the low yield available from traditional fixed income assets, the central bank is keen to push the plan through.
A spokeswoman at the central bank said the initial approval was a preliminary guideline and it was up to the BoT to work out a plan. “The cabinet has approved the asset class and we have to consider how to take this forward,” she said.
Allocating to equities is a relatively unusual move for an Asian emerging-market central bank, but BoT's regional peers have in recent years acknowledged the need to consider diversifying their portfolios in light of low returns from sovereign bonds.
Last year, the heads of reserve management at both the Indonesian and Philippine central banks told AsianInvestor how they were looking at doing this. The first step is generally to look at emerging-market sovereign debt, then corporate bonds, before stocks will be considered. At the time, Bangko Sentral ng Pilipinas was wholly allocated to sovereign debt, while Bank Indonesia was allocated to corporate debt via external mangers.
Meanwhile, there are moves afoot to set up a Thai sovereign wealth fund, but Veerathai said this new facility was not part of that plan, but simply a broadening of the central bank’s investment remit.
The planned Bt100 billion ($2.8 billion) Thailand Future Fund aims to drive more investment in domestic infrastructure. The TFF will deal exclusively in external mandates, with locally licensed asset managers to be awarded mandates. The investments will be global, so foreign fund houses should also get a piece of the action.
TFF will be a public-private partnership fund, and the Thai finance minister has reportedly already begun talks with prospective foreign investors, including China Investment Corporation.
The Thai cabinet also this week approved phase three of the Financial Sector Master Plan, which aims to establish a strategic framework for financial-sector development. This has implications for investment professionals in Thailand.
Under the plan, the BoT will encourage service providers to offer financial products and services “appropriate for changing customer demand, especially for aging people”. It will also foster professional development in finance, financial literacy and consumer protection, and encourage the legal infrastructure to enhance risk management and operational efficiency of domestic financial institutions. In addition, regulations and supervision will be strengthened to comply with international standards.
“The implementation of FSMP III will widely benefit the Thai economy,” said the BoT. “Businesses will be able to access financial services and credit through diverse channels. At the same time, continuous promotion of financial literacy will lead to efficient financial management and appropriate choice of financial product by households and businesses.”