The untold truth of the Thai stock market -this year.

PaulRen's picture

The broad average bigger cap stock is up 2% on the Thai SET this year, vs. the average broad smaller cap stock index is up average 46%! And this is never reported anywhere.  See the evidence below.   Bigger cap means:  return year-to-date on SET benchmark index + return of SET50, then the 2 averaged   Smaller cap return means:  MAI index,  sSET index and BMSCG (the only Thai ETF small cap fund) year to date returns, then these 3 averaged.   That's a 23 to 1 ratio difference!

The other day I was asked by someone “how is the Thai stock market holding up these days -considering all”.  I answered it’s a bipolar market of late with some stocks doing well or at least holding up, while others not. This got me thinking as actually there is a better more concise answer, revelation.  Which is, smaller cap stocks post a long period of underperformance (from 2017 to early 2020) have made a formidable comeback over the past year and reclaimed their fame to a good extend. I demonstrate this with the 3 graphs below:

The first one is the MAI index, which is a secondary index of only smaller capitalized companies.  MAI index up 57%  year to date 2021.














The second one (below) is the sSET, a subindex of the SET, representing stocks which are not part of the top 100.  sSET index up 50% year to date 2021.

The third one (just below)  is the BMSCG a small cap ETF fund which came to market around 3 years ago, right at the top of the market as so often. It promptly sold-off below its 10 Baht offering price but since since nicely recovered. BMSCG is up 33% year to date 2021.

One can readily see how these indexed have performed well and well above the market cap. Big cap SET index.  This to my knowledge is nowhere reported and in big contrast to other lagging investments.  Just like in the US, while totally different, big tech stocks keep leading there…smaller cap Thai stocks have regained there prominence here. 

 I won't task you with yet more graphs here but the SET benchmark index is up  barely 4% year to date 2012, while the "SET50" is unchanged, year to date 2021.  SET50 means biggest 50 Thai stocks.  You so can see the huge contrast -and yet nobody is talking about this.   

Hence the broad average bigger cap Thai stock is up 2% on the Thai SET this year, vs. the average broad smaller cap stock index, is up average 46.3%!  (56% + 50% + 33%) divided by 3 = 46.33% average.

Why is this?  My view here as stated before -and always welcome any comments from you all: 
1) Thai small cap’s got way oversold over a long(est) period of 3 years to the point where most everybody started to abandoned these...and so they became far too undervalued.
2) Smaller cap stocks broadly speaking are more shielded from the big macro troubles of the covit pandemic now. They are often niche or export companies still doing well (or at least coping better), paying solid dividends while some benefiting from a weaker Baht currency and not least the third reason which is:
3) Thai retail investors have come back in an impressive way since and many of these investors pay attention to fundamentals more than just trading volume or big market cap. Thai’s like so many other have been stuck at home, working at home and looking for something to do and many have returned to find appeal in interesting smaller cap’s.  Post a 3-4 year period of absence the numbers clearly show this, as I have pointed out recently.  Let's also not forget they got very tired of continued to no end of near 0% interest paid in Thai bank accounts.  You can see the current stat’s for SET retail investors at this link, now shown at just over 46%, year to date, vs less then 40% a couple of years ago, and near 30% in mid/late 2019:

A year ago this percentage participation was in the low 40’s.  But near the end of 2019, it was barely 30% (!), as I wrote that time, see this link:   This makes a big difference at the margin. Consider a 30 to 45% increased participation represents a 50% increase.

At that time, from 2017 to early 2020, I often expressed much frustration here why Thai retail investors fled the market in such droves compared to years' before that when they regularly made up over 50% of total market volume.  My conclusion back then was that Thai brokers and its mkt. officers did not see themselves as new wealth creators here at all, only advocating day trading, at every turn which management supported, which then created lots of disappointed investors and so this vicious circle only accelerated in ever more retail investor abandonment.  The SET nor brokers did nothing to counter this in my view.  What they did not address, the pandemic seemingly did.

As then Covit-19 came and changed this with some this group came back in droves. The new mantra seemed to be that if we have to sit at home, can’t take trips or go to the park or see a movie etc.. we matters' well trade & invest in the market.  This was not solely happening in Thailand but to even a large extend in the US, but for different reasons. Not to be confused with "meme-trading" which is trading around troubled companies…stocks which suddenly catch the fancy of individual US investors or day traders because they're the subject of social media attention. Not because they are doing well.   Here, fact is and remains many smaller cap Thai stocks "taste great and are less filling” but don’t count on finding out about these by Thai brokers nor are they owned much in ETF, mutual or other mega funds.

Its another case of "revenge of the nerds", where Thai retail investors have come back with high numbers gusto, and often smarts having figured out investor values are to be found beyond the nifty SET 50 (but no longer).  At least for now the big guys'/investors, have been left in the dust in 2021.  :)  

Best Regards,

Paul A. Renaud.