J U N E , 2 0 1 3 , 5th I s s u e 13 Economic“The “ Recoveryin America
A KASIKORNBANK PUBLICATION 1
13 Shareholder Newsletter
THAI ECONOMY 1H13 : Sluggish Domestic Thai Economic Overview Spending and Exports Although the Thai economy may not be able to avoid a deceleration in 1H13, KResearch is of the view that the Thai economy will gradually pick up later on in 2H13 as there are improving signs foreseen in global economic conditions amid a more stable Baht and domestic inflation, while the government’s budgetary disbursements should progress on-track. Thai economy...slowing growth in 1H13 The Thai economy began to slide at decelerated pace of 5.3 percent YoY in the start of 2013, mainly because of the 1Q13, reflecting that overall economic expiration of government economic stimulus activities returned to normalcy after measures, including the first-time car buyer registering a staggering 19.1 percent program, plus sluggish exports as the global YoY growth in 4Q12, as a result of the economic recovery remained fragile, low 2011 base. However the seasonally- inhibited by prolonged economic recession adjusted GDP for 1Q13 contracted 2.2 within the Eurozone and a slower-than- percent QoQ, due to the declines seen in expected economic recovery in China. household and public spending, plus fixed As a result, the Thailand economy grew at a asset investments and exports. 2
13 Shareholder Thai Economy exhibits slower growth in 1H13 Newsletter %YoY %YoY 35 Foreign Tourists Private Consumption 100 Exports 30 Private Investment 80 Manufacturing Production 25 60 20 40 15 20 10 0 5 -20 Jan 11 Jun 11 Jan 12 Jun 12 Jan 13 0 -40 Source : BOT, OIE, KResearch -5 Jan 11 Jun 11 Jan 12 Jun 12 Jan 13 -60 Source : BOT, KReseach %YoY Growth Rate of Thai Economy As economic conditions in 2Q13 should not change 25 19.1 significantly from the previous quarter, we at KResearch have 20 15 forecast that the Thai economy will continue to expand 10 5.3 at a slower pace, at 4.3 percent YoY, as the export and 5 2.7 3.7 4.4 0.4 3.1 4.3 manufacturing sectors remain clouded by murky global 0 economic conditions and the Baht’s volatility, though it -5 2Q11 4Q11 2Q12 4Q12 2Q13f -10 -8.9 began to soften gradually from mid-April. -15 Source : NESDB, KResearch Forecast
It is expected that private consumption will slow as the stimulus effects from the first-time car buyer program should subside around the middle of this year. Nevertheless, domestic demand will continue to grow, thanks to the government’s budgetary disbursements that will help spur cash flow in certain businesses, thus helping sustain employment and income that are standing at relatively high levels. In addition, the government’s decision to extend measures to help ease the high cost of living for consumers, e.g., free bus and economy-class train services, subsidies on certain fuels and price controls on some necessities, amid the downward trends seen in global crude oil prices, should help keep inflation at a moderate level and support domestic spending somewhat1. Issues to be monitored in 2H13 • Signs of global economic recovery : It is expected that global economic conditions, especially in China, will improve in 2H13. A more stable global economy should help bolster the Thai export and manufacturing sectors. Moreover, prices in some of our export categories will benefit from the rebound in global demand. • Budgetary disbursements for state investment projects other than those under the annual budget, including Baht 50-60 billion for the water management program by 4Q13 and Baht 10 billion for other infrastructure development projects. If these investment projects progress on-track, it is expected that the Thai economy will grow at a sustainable pace this year.
1 It is expected that inventories will increase in 2Q13 after gold prices have moder- ated and the delay in releasing certain agricultural produce from stocks. 3
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• Rising product prices in line with higher production costs will be more apparent than what was seen in 1H13. The cooking gas price hike scheduled for July will indirectly drive up product prices and production costs further. KResearch expects that subdued domestic spending and the high 2012 base will help keep inflationary pressures mostly benign until the end of 3Q13, before rising in the subsequent quarter.
Growth Projection for the Thai Economy in 2013 2013 Units % YoY or otherwise indicated 2011 2012 Base Case Forecase Range Thai GDP Growth 0.1 6.5 4.8 4.3-5-3 Avg. Dubai Crude (USD/barrel) 106.0 108.9 106.0 103.0-109.0 Private Consumption 1.3 6.7 3.5 3.1-3.8 Investment 3.3 13.2 6.5 5.9-7.2 Gov't Budget Balance (% of GDP)** -3.3 -2.8 -2.3 -2.6 to -1.7 Export Growth 14.3 3.2 7.0 4.0-9.0 Import Growth 24.9 7.8 8.5 5.5-11.0 Trade Balance (USD bn) 17.0 8.3 5.7 4.5-6.7 Current Account (USD bn) 5.9 2.7 -1.3 -3.8 to 0.7 Headline CPI 3.8 3.0 2.6 2.4-3.0 Core CPI 2.4 2.1 1.4 1.2-1.7 Unemployment Rate (% of Labor Force) 0.7 0.7 0.8 0.7-0.9
Souce : NESDB, BOT, MOC, and KResearch Forecase as of 20 May 2013
Thai economy expected to grow at 4.8 percent in 2013 KResearch projects that the Thai economy will grow at around 4.8 percent in 2013 or within 4.3-5.3 percent, assuming that Dubai crude averages USD103-109/barrel, and major economies except for the Eurozone are able to sustain growth momentum, even if fiscal restrictions in the US may weigh down on its economy, causing it to grow at less than 2.0 percent this year. KResearch is of the view that the Thai economy will gradually recover over the remainder of 2013 following the QoQ contraction seen in 1Q13 if global economic conditions improve amid more stable Baht and inflation movements, plus the government’s budgetary disbursements progress on-track. Nevertheless, the 2012 base and expiration of measures to stimulate consumer spending on durable goods such as cars will present an important test as to whether the Thai economy can sustain growth, particularly when our exports hinge on the global economic recovery, while government spending on special projects, namely the water management program and various infrastructure development projects, will have to go through various verification processes before it can begin perhaps later this year. 4
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With regard to investments in the financial markets, signs that the US Federal Reserve (Fed) might end its quantitative easing (QE) measures amid a fragile economic recovery in China will likely steepen volatility in international capital movements. This means that the global financial and capital markets will inevitably have to make a major adjustment if signs of QE exit become apparent in 2H13.
Disclaimer This research paper is arranged for public information, which has been obtained from sources believed to be reliable. KResearch does not warrant its completeness, reliability or accuracy for commerce or fitness for a particular purpose. The information contained herein may be subject to change at any time without notice. Reliance upon any information contained herein shall be undertaken at the user’s own risk. KResearch shall not be liable to any user, or anyone else, for any damage occurring from the use of any content herein. Nothing in this research paper shall be counted as containing any advice, recommendation or opinion for decision-making in business. 5
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Investment Strategies through the Second-
Stock Half 2013 Market Conditions 6
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attribute the 20-percent stock market consolidation • We hold to our 2013 SET Index projection of 1,700, WE over the last two months, with the index falling from a expecting a fourth quarter rebound as market concerns over high of 1,645 to around 1,300 points, largely to capital outflows a pull-back of QE subside. rather than to fundamentals. • We continue to advise going overweight in banking, • Lowered GDP projections from the IMF and the World real estate, hotels, hospitals, food and agriculture, infrastructure, Bank represent slower but continuing global recovery. and ICT, recommending SCB, CPN, PS, MINT, BGH, CPF, TUF, • Analysts have not reduced their projections of listed EGCO and ADVANC. company earnings, in spite of the drop in the SET Index. • For medium- and small-cap stocks, we recommend • In spite of the steep consolidation, we are projecting TK, PM, SMK, SINGER, SAMART, MALEE, STANLY, and DSGT. next year’s price to earnings ratio (P/E) at 10-11, with a SET Index of 1,300-1,400 offering an attractive buying window. The consolidation means it’s time to buy Over the past few months, from mid-May through early June, a strengthening Japanese Yen and a weakening Thai Baht have motivated sell-offs in order to pay foreign currency-denominated debts — Yen carry trade unwinding. This, together with fears that the US Fed may terminate quantitative easing as the US economy improves, with possible liquidity effects on equity markets worldwide, lowered investment premiums, i.e. reduced expected P/E, or de-rating. We see the consequent consolidation as a good time to buy, believing that the fall-off represents overreaction to concerns of capital flight. The eventual termination of QE, we believe, will be accomplished a little at a time, not all at once, and in any case QE3 has not introduced new foreign cash into the Thai stock market (Figure 1); on the contrary, there has been a net sell-off by foreign investors. Moreover, in spite of economic improvement, US unemployment remains high at 7.6 percent, well above the 6.5 percent at which the Federal Reserve Chairman has said QE would be terminated, and in any case, early termination would endanger the currently fragile recovery in the US. Figure 1: Capital inflows during QE1, 2 and 3 Accumulated Foreign Flow SET Index 8000 1800 In terms of fundamentals, analysts have not reduced 7000 Net buy Net buy 1600 +2.706 bn USD +2,165 bn USD 6000 1400 their 2013-2014 earnings forecasts for listed Thai companies. 5000 1200 Figure 2 reflects the continuing strong fundamentals of these 4000 QE1 Net Sell 1000 3000 -1,030 bn USD companies, confirming our attribution of the downturn to LTRO 800 2000 QE2 capital outflows rather to fundamentals. 1000 QE3 600 0 400 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Source : Bloomberg and KSecurities 7
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Figure 2: Analyst maintain their projections on net earnings for listed Thai companies
SET Index EPS (Bt/sh)
140 120 100 80 60 40 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 2008 2009 2010 2011 2012 2013 2014 2015 Source : Bloomberg
Buy at 1,300-1,350 Figure 3: P/E on Thai stocks during QE, 1, 2 and 3 We believe a SET Index of 1,300-1,350 is a safe level at 12 m Forward Per (x) which to buy, giving a likely forward P/E for 2013 of 11.5-12.0, 17 lower than the long-term average of 13. We expect P/E for 16 15 2014 to slip further to 10-10.4 (Figure 3), close to the level at 14 QE1 the beginning of QE1, and, we believe, taking into account 13 12 QE3 any risk from decreasing liquidity. On the other hand, P/E on 11 10 QE2 Thai stocks fell to 7.5 at the beginning of QE1 and one may SET index 1300 1350 9 P/E 2013 11.5 12.0 ask whether a repeat of that decline is in the offing. Not 8 P/E 2014 10.0 10.4 likely. Conditions are far different now than they were in 2008: 7 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Oct-12 Oct-11 Oct-08 Oct-09 Oct-10 Oct-13 net earnings have soared from - 18.4 percent to 20 percent, Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 economic expansion nearly doubled from 2.6 percent to 4.8 Source : Bloomberg and KSecurities percent, and return on equity has doubled from 8.6 percent to 17 percent. Beyond P/E, a glance at the past shows that short-lived consolidations are a common feature in a generally rising market. In the course of the upswing from 2009 through 2013, there were a number of corrections in the 9-12 percent range. The deepest, in 2011, was nearly 25 percent. Thus, the current 20-percent consolidation is not an uncommon occurrence, and is due to liquidity conditions rather than to fundamentals. 8
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Figure 4: Market corrections in a rising market, 2009-2013 0 1500 -5 1300 -10 1100 -15 900 -20 700 -25 500 % Correction SET Index -30 300 % Index Jul-09 Jul-10 Jul-11 Jul-12 Jan-10 Jan-11 Jan-12 Jan-13
Source: The Stock Exchange of Thailand and KSecurities
Market outlook for the balance of the year Over the short term, while concerns over falling liquidity continue, we expect Thai stocks to trade at P/Es between 11 and 13, with the SET Index remaining in the 1,300 to 1,500 range. We recommend trades within this range through the third quarter. Over the longer term, we expect upward movement overall in capital and stock markets worldwide, following trends in economic recovery. This is particularly so in Western markets such as in the US and Europe where recovery should firm up in the third quarter and beyond, bolstering investment towards the end of the year. We are holding to our prediction of a SET Index around 1,700 with P/E for 2013 at 15, equivalent to 13 in 2004. Unexpected risks 1) Domestic political risks are difficult to assess. The Thai Constitutional Court will soon rule on constitutional amendments and government stability may be shaken by pressures from losses in the rice pledging program. 2) It is unlikely that the US Fed will terminate QE before early next year. If it is terminated this year though, foreign investors will sell off more of their Thai stocks, creating risk that the SET Index will fail to perform as projected. Emphasize stocks driven by domestic consumption We continue to advise going overweight in banking, real estate, hotels, hospitals, food and agriculture, infrastructure, and ICT, remaining neutral in petrochemicals and refineries, entertainment, electronics, and transportation. We would go underweight in energy and automotive. For long-term investments, we recommend SCB, CPN, PS, MINT, BGH, CPF, TUF, EGCO, and ADVANC. TK, PM, SMK, SINGER, SAMART, MALEE, STANLY and DSGT are preferred for medium- and small-cap stocks. nd 9 B Bo an k D 13 e po sit
Fund Shareholder Newsletter 13 Newsletter Investment Chanels
WANT TO LOCK YOUR RETURNS ORREST YOUR MONEY? Fixed-Income Funds may be Your Answer 10
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Investors acquainted with fixed-term fixed-income funds having 3-month, 6-month or 1-year tenors may have witnessed continual drops in the expected return on such funds, compared to returns at the beginning of the year. This trend is consistent with the Bank of Thailand’s decision to reduce their key policy rate in May to slow the massive fund inflows that had caused substantial Baht appreciation in recent months. Following that move, bond yields dropped, as well as the returns on investments in domestic securities. Foreign fixed-income funds experience few changes in returns relative to the foreign-currency bonds they are linked with. But those returns, when converted into Thai Baht, have fallen because these funds are hedged against foreign exchange risk. As such, their returns depend on two items : 1) returns generated by the bonds; and 2) additional returns from foreign exchange hedging, which will depend on the interest margin associated with the two currencies (i.e., between US and Thai interest rates) - where higher margins generate higher returns. Therefore, a lower margin such as after the recent Thai policy rate cut results in lower returns from hedging, and thus lower returns overall on foreign fixed-income funds. Domestically, the NESDB’s Thailand 1Q13 GDP growth rate was quoted at 5.30 percent, lower than earlier projected amid Baht appreciation that impeded export performance. To stimulate the economy, the Bank of Thailand decided to cut their key policy rate in concert with many central banks within Asia, e.g., South Korea, Vietnam, Australia and India, that had decreased their policy rates in May. Throughout the rest of this year, it is likely that Thailand’s policy rate may remain static, rather than being raised again, meaning that returns from investment in fixed-income funds may not increase as well. 11
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Another factor influencing returns from foreign fixed- and next-day payments of proceeds from their sale, but are income funds would be the gradual depreciation of the Thai not constrained by such limitations on bond maturity or the Baht beginning early in June, since a softer Baht equates to proportion of their international investments. Such funds can smaller investment values in foreign currencies, in spite of offer even higher returns that those of money market funds, hedging. Therefore, our advice for the moment is that one but with higher risk due to longer tenors on them, which may should focus on investments in fixed-term fixed-income funds then cause them to face interest rate or market changes over of six-month to one-year tenors to lock in the rate of return time. Normally, bond prices with long tenors are more volatile against further drops. But for those who have not yet decided and their returns may be negative over the short term. It is thus necessary for investors to study and understand these funds used for “resting their money”, especially whether they are “money market funds” or “fixed-income funds with similar features to money market funds”, which involve different levels of risk. Aside from ‘parking money’ while awaiting better investment timing (e.g., wherein market corrections are expected), money market funds and highly liquid fixed-income funds similar to money market funds can be beneficial to investors with low risk appetites, especially for those who require high liquidity and do not want to freeze their money in fixed-term fixed-income funds. But one issue of concern is that yet how to deal with the present situation, and who may have the returns from these funds cannot be forecast as accurately considered parking their money in money market funds that as on fixed-term funds, since they vary with prevailing market focus on short-term bonds with high liquidity, the investment conditions. Amid a bearish interest rate trend, these funds will units of these funds can be traded on any business day and the achieve smaller returns accordingly. proceeds from their sale can be received on the following Becoming more knowledgeable about both the positive business day, with generally higher returns than savings and negative aspects of fixed-income funds will help you in interest rates. portfolio management, thus adjustments to it to respond to However, money market funds can only invest in bonds your needs will become less difficult. with maturities of up to 397 days and have an average duration in fund holdings of up to only three months. Also, their investments in foreign holdings are limited to only 30 percent of their total investment unit value. Although offering higher Disclaimer: returns than savings deposits, they may not meet the needs of Investments contain risk. Investors should study the prospectus some investors. Thus these investors may want to explore and tax handbook before making any decision to invest. other investments with similar features such as daily trading Information as of June 12, 2013 12
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With higher risk due tolonger tenors on them, which may then cause them to face interest rate or market changes over time.
Newsletter Newsletter 13
Shareholder 13 Good Health, Good Mind 14
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Dengue Fever Dengue Fever or Dengue Hemorrhagic Fever is a tropical disease caused by the dengue virus, transmitted by mosquitoes. Symptoms include fever, headache, joint and muscle pain, and a characteristic rash similar to that of measles. In a few sufferers, the disease develops into life-threatening symptoms which include bleeding, low blood platelet levels and plasma leakage. Symptoms may progress potentially into dengue shock syndrome with dangerously low blood pressure. Cause The dengue virus is transmitted by the female Aedes aegyti mosquito. The mosquito contracts the virus from the blood of an infected individual, especially during the high-fever phase of the disease. The virus multiplies within the mosquito’s gut for eight to ten days, after which it enters the saliva; the mosquito then infects other persons through bites. Two to seven days of fever may follow an incubation of four to seven (but possibly as many as 14) days; it is during this feverish period that mosquitoes are most likely to pick up the virus and subsequently The incidence of dengue fever has increased markedly infect others. since 1960, with infections of around 50-100 million a year. First Dengue fever is most common in children under 15 and described in 1779, the virus and mode of transmission most infections occur during the rainy season when the through mosquitoes - were only identified in the early twentieth mosquito breeds in large quantities and when children are more century. After World War II, the disease was endemic in over likely to remain in the home. In urban areas like Bangkok, 110 countries, and has since been one of the world’s leading disease is found year round. There are four serotypes of the health concerns. Beyond mosquito control, efforts to combat virus, and while a first infection is not likely to produce severe the disease have been centered around attempts to develop symptoms, a second infection by a different serotype may lead vaccines and antiviral drugs. to hemorrhaging, shock and even death. 15
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Symptoms With the first infection, 80-90% of patients display no symptoms, the balance experiencing fever, headache, muscle and joint pain, and rash. With a second infection, by a different serotype, the patient is likely to pass through the following febrile, critical, and recovery phases. 1. Febrile phase : Nearly constant high fever resulting in seizure for some children. Other symptoms include loss of appetite, nausea, vomiting, abdominal pain, flushed face, rash, and red spots on the torso and limbs. This phase usually lasts two to seven days. 2. Critical phase : Fever drops rapidly, with listlessness, perspiration, cool extremities, and weak, rapid pulse. Other symptoms may include pain under the right rib cage, low urine discharge, and bleeding, for example from the nose, vomiting blood and bloody stool. In severe cases, blood pressure drops and the patient may go into shock and even die. This phase lasts 24-48 hours. 3. Recovery phase : Symptoms abate with a return of appetite, higher blood pressure, stronger, slower pulse and increased production of urine. Some may develop a rash and tiny blood spots on the torso. Diagnosis World Health Organization (WHO) guidelines for a diagnosis of dengue fever include high fever, positive tourniquet test, bleeding from the gums or nose, pain under the right rib cage due to swollen liver, shock, low blood platelet levels, and thickened blood. Lymphocyte blood counts and virus isolation may be used to confirm the diagnosis. Within one to two days of the onset of fever, however, symptoms may be ambiguous and blood counts normal; such patients should be monitored closely and the blood test repeated if symptoms do not abate. 16
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"There are no antiviral drugs specific to dengue feverand symptomatic treatment is essential."
Treatment There are no antiviral drugs specific to dengue fever and symptomatic treatment is essential. Treat high fever with paracetamol, never aspirin as aspirin may intensify bleeding. Nausea can be treated by anti-nausea medication and have the patient drink rehydration solution or juice, frequently and in small amounts. Monitor symptoms closely to prevent shock - which typically occurs as the fever abates. The caretaker should know the warning signs preceding shock: abdominal pain, decrease in urine discharge, restlessness or lethargy, cool extremities as the fever subsides, dizziness and being prone to fainting. Patients with these symptoms should be taken immediately to the hospital. Prevention 1. Reduce exposure to mosquitoes; sleep under a net, even during the day. 2. Eliminate mosquito breeding sites in and around the home. 3. Change any standing water at least once a week. 4. Eliminate discarded items that may hold standing water, such as old tires and flowerpots. 5. Raise mosquito-larvae eating fish in aquariums or other bodies of water. 6. Always cover water containers or introduce temphos sand to eliminate mosquito larvae. 7. Put salt or vinegar into water-filled cups under pantry legs (used as a barrier to ants).
Source : http://www.tm.mahidol.ac.th/hospital/hospital-dengue-th.php (Hospital for Tropical Diseases, Mahidol University) 17
13 Shareholder Newsletter KBank News Update
Chengdu Branch Opens KASIKORNBANK has opened its third branch in China as a center to connect businesses of Thailand and China, in tandem with the Chinese government’s policy to promote Sichuan as a major business center for western China. The Chengdu Branch and the Bank’s network offer loans and deposits for retail and corporate customers, and international transactions between Thailand and China for Sino-Thai SME customers, taking advantage of the Bank’s strong SME market potential and international SME network. KBank introduces a TV program promoting family businesses
KBank News Update KASIKORNBANK has introduced and sponsors “Family Business Open Up!”, a TV program that shares information on views, ideas and roles within family businesses, secrets of successful family businesses, and differences in ideas between generations. This reflects challenges in family business administration, along with inspiration in business succession towards sustainable growth. The program is produced by Workpoint Entertainment and will be aired via TV Channel 5 on Sundays at 5 - 5.50 p.m. KBank and leading Myanmar bank offer expanded workers’ remittance to Myanmar KASIKORNBANK is expanding channels for its workers’ remitance service, placing emphasis on the Bank’s strategy to be an Asian Bank. The Bank recently joined hands with Co-Operative Bank (CB Bank), one of Myanmar’s major commercial banks, to offer a funds transfer service. Available in Myanmar language, the service is offered via more than 880 K-ATMs nationwide with a maximum funds transfer amount of 100,000 Baht per person per day. Funds can be received within the same day (for transactions made before 2 p.m.) at 260 branches of CB Bank’s affiliated banks in Myanmar. Interested persons can apply for the service via any KBank branch, and use the service through K-ATMs nationwide. 18
13 Shareholder Newsletter KBank boosts its 500-billion-Baht portfolio under private banking business Placing emphasis on its leadership in private banking, KBank is expanding the business upcountry with expansion of its customer base by 20 percent, particularly in major cities where economic growth is averaging higher than that of the rest of the country. Manpower has been prepared for the financial advisory group, a major supportive mechanism for private banking business and regional customer service. KBank’s private banking customers, or the High Net Worth Individual (HNWI) segment, number 6,500 persons, equivalent to a 30-percent market share of the 21,000 HNWIs in Thailand. The Bank currently has 500 billion Baht of AUM for the HNWI segment. KBank introduces “K-SME Credit: Easy and Worry-Free” KASIKORNBANK has introduced “K-SME Credit: Easy and Worry-Free”, designed especially to provide access to formal funding sources for small business operators who are running cash businesses. Out of a total 2.6 million SMEs nationwide, some 700,000 small business operators are running cash businesses and making transactions via the Bank’s accounts. These small businessmen have no transaction-related evidences to apply for bank loans. To verify customers’ payment ability, the Bank examines customers’ other business evidences including sales slips, order documents, and water and electricity bills. The Bank may also visit the business sites and inventories. The Bank intends to offer 5 billion Baht of loans to 2,000 SME operators under the program. For more information, please contact the K-Biz Contact Center by calling 02-888-8822. KBank promotes financial discipline by offering interest discount up to 12% p.a. for customers without late payments KASIKORNBANK has introduced the “Pay on time, get interest discount up to 12% p.a.” program to promote financial discipline among K-Express Cash customers with good credit histories, offering an interest discount of up to 12 percent per annum, available from May 1 to October 31. Under the program, the Bank is promoting the government’s policy of household debt reduction, along with financial discipline in payment among KBank borrowers. The Bank’s retail customers are thus encouraged to maintain good payment records. 19
13 Shareholder Newsletter Shareholders' News Update ETFs, or ‘Exchange Traded Funds’, are open-ended index funds traded on a stock exchange, just like ordinary stock. An ETF focuses on What a rate of return matching the underlying index. The first ETF in Thailand was the ThaiDEX SET50 ETF (or TDEX) tracking the SET50 market-weighted is an index, which enables investors to diversify their ETF? investment risks To begin with, investors should understand that ETF unit prices are of two types : 1) The Trading Price, a bid or offer price shown on the ETF trading screen that is determined by demand and supply in the market ; and, 2) The Net Asset Value (NAV) that is normally calculated vis-A-vis the buying-selling prices of the underlying assets at the end of the trading day. ETFs provide their real-time NAV - ‘i-NAV’ - calculated and reported by an asset management company, minute-to- minute throughout the exchange trading hours. 20
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Investments in ETFs have two types of returns : 1. Capital gains since investors can trade an ETF like an ordinary stock, they can buy when it is low and sell at a higher price to gain profit. 2. Dividends are usually paid to investors, derived from the stocks that are components of the ETF fund, less a transaction fee and the Fund’s expenses. Investing in ETFs entails the same influencing factors as the underlying index. They include the release of positive economic indicators that can boost the index, which would, in turn, buoy the ETF unit price. As a result, an ETF may be worth more than its original cost when it is redeemed. Investors are also subject to tracking error risk - a deviation of the ETF from the index to which it is benchmarked. In such cases, the return on ETF investments may either outperform or underperform the underlying index. ETFs enable investors to instantaneously buy or sell via a SET broker at any time during the trading hours at the prevailing price when the order is executed. They can submit an ETF bid or offer order in a board lot, similar to ordinary stock, as depicted in the Figure 1.
Figure 1 : ETF Trading Process
Open a trading Observe Submit Receive account real-time buy-sell orders ETF units with a broker trading prices via broker or cash
ETFs are traded in board lots that are the same size as then sells it at THB6.90, the THB0.40 gain is exempted from capital normal board lots. The minimum lot size is 100 units. If the ETF is gains tax. However, dividends from ETF are subject to a 10- traded at THB5.50 per unit, the minimum investment would be percent withholding tax, but are not required to be declared THB550 (excluding the commission fee). Similar to an ordinary as taxable income when filing a tax return at the year-end. stock traded on the SET, an ETF is not subject to a capital gains tax. For instance, an investor buys an ETF unit at THB6.50 and 21
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Regulations on ETF Trading Taxation
Dividends Capital gains
- Withholding tax of 10 percent Private - Dividends are not required to Exempt from capital gains tax Individuals/ be declared as taxable income Natural person at the year-end. Registered Capital gains* Calculated as taxable income Businesses/Juristic are exempt from corporate person income tax. Limited companies** Half of the dividend received Calculated as taxable income must be declared as taxable income at the yearend.
Note: *, ** Listed companies are required to hold an ETF unit at least three months before and after dividend payments.
When buying or selling an ETF unit, ETF investors are subject to a commission fee at a negotiable rate, inclusive of 7-percent VAT. The commission fee on an ETF unit shall not be set at lower than 0.1 percent of the ETF trading value. The ETF prospectus is important material for prospective investors that they should study carefully before investing. The prospectus discloses information such as the fund’s objectives, performance record, fees, and other details. Investments in ETFs are quite similar to investments in ordinary stock traded on the SET. However, ETF investors benefit from risk diversification where an Index Fund that comprises many stocks such as in the SET50. Differences in ETFs, stock and index fund units are listed in the table below. 22
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Differences ETF Stock Index Funds Pricing Real time, subject to Real time, subject to NAV calculated at the end of the trading day Intra-Day market mechanisms market mechanisms or the following trading day, plus or minus fee (if any)
Unit of Trade During market hours During market hours Minimum investment is THB 5,000 . Unit of Trade Investors can submit an Board lots. Each board lot Board lots. Each board lot order during market hours, Trading represent 100 ETF units represent 100 ETF shares but they will not know the Period executed price until the end of that trading day. Sliding scale (based on daily market turnover) 0.20-0.25% Retail X ≤ 5 m > 0.25%-1% inves- m < X ≤ 20 m ≥ 0.22%-1% Transaction tors 5 m < X ≤ 10m ≥ 0.18%-1% Fee X > 20 m Negotiated rate Institutional investors Negotiated rate Negotiated rate Investors can submit Investors can buy or sell How to Buy Investors can submit orders orders via a brokerage through a fund unit via or Sell via a brokerage account. account. an asset management company. Settlements T+3 T+3 T+4 Dividends Possible Possible Possible Benefits Risk diversification via Equity risk Risk diversification via investment in diversified investment in diversified stocks that are components stocks that are in SET 50 components in SET50 *m = Million Baht Aside from the ThaiDEX SET50 ETF (TDEX) tracking the SET50 market-weighted index - the first of its kind in Thailand – there are ETFs designed to track the performance of other underlying assets such as debt instruments, gold or other assets in other markets. ETFs may also focus on industrial sectors such as energy, food and beverages, etc. Investors are recommended to thoroughly study each ETF to evaluate its inherent risks before investing to minimize any risk that could be incurred. Source: SET Website (http://www.set.or.th/th/faqs/etf_p1.html#1)