Hailed as one of the top emerging markets for 2021, experts have great expectations for Thailand’s securities services industry
Known for its delicious cuisine, tuk-tuks, martial arts, floating markets and stunning islands, Thailand has emerged as one of the most visited tourist destinations in the world. Besides this, Thailand can also be described as a dynamic emerging market. Its securities services industry mainly consists of inbound investment from foreign investors (direct custody and clearing) and outbound/domestic investment (mutual funds, pension funds and private funds). Given that the majority of the market share is in direct custody and mutual funds, the focus is on these two sectors. Meanwhile, Thai asset owners are at the forefront of the trends identified across the five themes shaping the future of the global investment industry. These trends referenced in BNY Mellon’s trends report, ‘2020 and Beyond – a New Era of Transformation for Buy-Side Leaders’, can be identified as:
ESG: Thailand leads the region when it comes to environmental, social and governance (ESG) disclosures, and asset owners have taken the approach of integrating ESG factors into both their research as well as decision-making processes
Digitalisation: Thailand’s asset owners have been first movers in championing the front-to-back ecosystems, starting with the implementation of cutting edge order management system (OMS) tools to integrate better with their middle - and back-office functions
Alternatives: Pivoting from the traditional asset classes to fulfil their social purpose, Thailand’s asset owners have chosen a partnership approach by co-investing with their global pension peers
If these positive trends continue in Thailand, experts say the country has the potential to continue to evolve and garner growth opportunities within its financial services industry.
Updating the rules
Another sign that the market in Thailand is progressing can be found in the recent amendments to securities market regulation. For example, the Securities Exchange and Commission (SEC) in Thailand recently relaxed the outsourcing rules.
“The relaxation in the outsourcing rules by the SEC will enable securities services providers like us to adopt our regional operating models in Thailand to provide more options to clients to outsource operations to us in fund administration, middle-office and so on,” explains Utumporn Viranuvatti, head of securities services, Thailand, HSBC.
According to Viranuvatti, these amendments will enable asset owners and managers to focus on their core offering and outsource their back-office operations to HSBC.
In March, HSBC Securities Services launched fund administration services in Thailand for its asset owners and managers clients. This is in addition to its custody and fund supervisory services that were already being offered.
This new offering, with many more planned, is part of HSBC’s Asia-first strategy to accelerate growth in the region, including Thailand, by ramping up investment in additional solutions and capabilities.
Discussing why the rules were revised, Viranuvatti explains: “The Thailand market is at a stage of evolution where it is looking to adopt best practices, and the regulator is taking steps in that direction.”
As well as this, the SEC foresees the need for asset owners and managers to focus more on their core offering as they diversify their investments into complex instruments offshore.
The rules enable banks like HSBC to leverage the large pool of resources, talent and information available globally within its organisation to assist Thai clients with its expertise and help them navigate more complex markets.
Asset owners in Thailand
In line with the evolution in Thailand, Thai asset owners are showing increasing interest in data aggregation, mastery, sourcing of data, and then taking it to the next phase, which covers information and insight.
According to experts, incorporating technology will be extremely important to building a sophisticated investment infrastructure in Thailand, and it could in fact change how investors allocate and manage assets in the future.
Mathew Kathayanat, director and head of product and strategy for Asia Pacific, asset servicing at BNY Mellon, identifies that Thai asset owners have invested significantly in creating front-to-back operating models for the future.
Additionally, there has been notable interest in creating a digital environment, evident in the Bank of Thailand’s Project Inthanon, a proof-of-concept for wholesale domestic and cross-border funds transfer using central bank digital currency.
Kathayanat suggests these future-ready operating and technology ecosystems will assist the sovereign institutions in Thailand to tap into the assets that help achieve their social purpose.
In addition to technology, ESG-integrated portfolios and sustainable investing are another factor proving to be of great importance to asset owners in Thailand.
Kathayanat says: “ESG-integrated portfolios and sustainable investing are very important to asset owners in Thailand, who are hugely bullish on ESG investing.”
Asset owners in Thailand have been working closely with the UN Principles for Responsible Investment (UNPRI) and the Organization of Economic Cooperation and Development (OECD) to develop guidelines for due diligence around their investment process and ESG integration framework.
They have kickstarted the journey by focusing on:
ESG screening, applying an ‘ESG lens’ to their investments
Integrating ESG into their investing
Training (in conjunction with the regulator, making ESG education mandatory)
Regarding regulation, Thailand’s asset owners have steadily increased their allocation to alternative investments, mainly in partnership with global sovereign peers.
According to Kathayanat, the key challenge that this creates is an added reporting burden, requiring them to adjust their operating model to meet further oversight and reporting.
In terms of how beneficial owners in Thailand are looking at global investments, Kathayanat notes that Thailand’s asset owners have a balanced approach to asset allocation.
“While adhering to ESG standards, assets owners are weighing up the benefits of employing external asset managers, rather than managing investments in-house. In reviewing their investment strategies, asset owners are also assessing their allocations to fixed income, relative to equity or alternative asset classes, and their appetite for chasing yields in developed markets, rather than boosting their allocation to emerging markets,” adds Kathayanat.
