Broker nonsense on day trading galore.

"When people start opposing the state or economic manipulation, they are expressing the fact that there is civil society".   Southeast Asian Images, Towards Civil Society?  By Niels Mulder (2003 Silkworm Books).

Last week I wrote a long member article where I explain my own reasons why I think the Thai economic recovery is indeed a super charged one, which could well last for some years. I pointed out the various unique positives and why things have overall changed for the better in stronger economic and more political stable Siam.

One area that has not improved much since the go-go 1990’s, it seems, is overall Thai broker behavior. There are still far too many licensed brokers here and many do not behave up to the global professional standard. With this I mean promoting trading and speculating, rather than nurturing responsible long term investing. Contrary to what some outdated Broker management gnomes believe, long term investing is what most stock investors desperately here want. I not here say it is flat across the board because I think some brokers have definitely gotten the message and promote a better and healthier long term broker/client and Thai investment economic climate. But his is the exception rather then rule.

The problem remains with the die hard old guard, which routinely induce unsophisticated new equity investors into speculating and day trading; even while, this is dead against the clients inherent investment objective. Since the end of October, the day traders have had a hard time because the SET rally has stalled. One main reason being due to the Bank of Thailand (and so the SET), are rightfully so starting to introduce anti-speculative measures against the practice called net settlement. Net settlement is the gambling practice where "everything goes intra-day"; as long as at the end of the trading day, the customer can pay the net settled difference. In effect trades can take place well beyond a speculators" capital at hand. This so violates a number of golden rules to proper stock market investing.

Now some will cry out and say the government should not interfere with the workings of a free market. Others, no doubt the brokers, will say it is their clients which demand this.

Both are wrong. Just like the game of golf, certain key rules must be enforced or the whole discipline becomes nonsense. In a Hospital you do not let your patients (same as clients) just help themselves to their preferred medicines behind the pharmacy doors. The investing public is for the most part naïve because nobody ever taught them some of the basic investing principles. Just like certain medicines can be deadly when mixed together, so can speculating mixed with investing be to a long term investor’s performance.

How many of you have had a good stock this year, only to be told by your friendly broker to trade it out and go to the next one, thereby nailing down a 5-10% profit but later loosing out on a 100% or more, tax free capital gain? In the meantime the "next one" was hardly as good as a selection, as the first one.

While taking profits at times and rotating some positions makes some sense, to turn long term investors into day traders is bad for everybody, except broker commissions. Would you buy a house, only to a few days later be told by the real estate agent to sell it again? Would you buy a new car only to days later be told, get another one? So why should this be so different with stocks? In a new bull market the two losers are:

1) The cynic group whom abstain and not see then a new reality of good investment values besides high dividends. 

2) Those whom sell out all their good long term investment positions and hold on to loosing trading positions. And since we are on the subject, the third losers for some time have been the obnoxious outdated die-hard’s whom still believe that only buying Bank and Finance shares is the wise strategy.

This theme here you read me fuming about again was exactly the problem in the previous Thai stock market boom. Smaller and mid sized solid firms, the real Thailand, got increasingly ignored because everybody and their Aunts-were day trading around big cap.s. And so, large liquid shares, always preferred by day traders brokers and institutions, became excessively overvalued and sucked more then 90% of the investment capital away, from the real economic Thailand. In time this became one of the reasons why the Thai stock market virtually collapsed. It was a classic bubble… nurtured daily by the broker adored speculators.

Do we have to go through the same deja vu non-sense again, I demand to ask.

Is liquidity endlessly priced? Are some brokers tolerated by regulators to just turn most all new investing accounts into unsuspecting day traders? Day trading is like a fix. It works well for all in the short term, that is, until the client starts loosing while spending excessive productive time. Then it’s called "churn and burn" besides robbing the investors productive business hours.

In time, too many retail investors concludes it is all just a game and so talk bad about what actually is a very profitable & solid long term investment proposition. Domestic savings then either become misallocated or flee the local capital markets, all to the detriment of the Thai real economy. In the meantime the glossy press describes the SET as highly volatile and full of speculative holes. In time many questionable firms rise in value, only because they have the speculative twist and the cycle repeats itself.

What is to do? One so then can ask. There are definite measures the SET/SEC can enforce to contain this vicious cycle; measures which are long in force in developed markets. In a future essay I will write about some simple but mighty important measures our local regulators should have long ago put their foot down on.

***

SET now finally entering a trading range bound band of say 630 to 680.

I think the SET benchmark has now entered a trading range pattern where buy on weakness and take some profits on strength may well be the flavor of until year end. Then, when many new bulls give up, perhaps over the New Year holidays, the market should make another move up. Assuming the regulators can contain this broker nonsense on "day trading galore", next year looks good due to favorable fundamentals, resurgent corporate profitability, beyond just the smaller cap’s of the past, still relative low valuations and stable politics besides still high dividend income.

***

On the Thai Currency.

One credible Swiss source told me last week that they believe the Thai Baht currency is now at some risk. For sure, if the SET gets back its old gambling den reputation from a decade ago, they well may be right? But for now I disagree and below is what I wrote them back:

--Thai domestic inflation pressures are very low, even as compared to Switzerland, Germany or USA. Despite global energy prices spiking up, the Thai wholesale price deflation index has been around 0% for some time!

--No twin budget or trade deficits. Au contraire, Thai tax revenues are increasing well above expectation this is due to better collection methods and much higher economic activity.

--More stable politics then at any time in the recent past. Prime Minister Taksin is the new strong Man/leader of SE Asia and his many critics have been proven wrong. No scandals in our financial markets, unlike like USA or even EU. Accounting more simple and firms less leveraged then in developed markets.

--Resurgent strong domestic economy, with GNP growth rates expected to top 6% next year. A rate triple that of the EU average and at least double, of better performing USA. Strong economic growth rates have most often lead to a rising currency, not the other way around. It is true that in time a boom can lead to new inflation (and so currency erosion), but this time is some time away.

---Within 5 hours flying time of HongKong, half the world’s people live. They are young and wanting many new to them, consumer products. Yet, Asia will never be like EU or USA, she is far too big and far too old. Suicide rates in Thailand for example are far lower then in the WEST. Medical cost in general are much lower in Asia then USA/EU.

---Consider There are a number of neat Thai export companies which would greatly benefit should the Thai Baht currency weaken. Global investors whom believe this is a risk can easily overweight such firms and so get a magnified hedge against this risk. Ocean Glass (OGC 91) the drinking glass manufacturer I often mention as one example, would much benefit from a Baht weakening vs. EU or USA.

Best Regards to all Members,

Paul A. Renaud.