My view is to hold on to winning selections. Will Thailand follow Korea?

January 30, 2006

"Dont" just do something, sit there". 

And...in South Korea there now is an outright boom among the middle class investing in the local stock market. Can the same thing happen in Thailand?

I am not making any changes to my stock list, favored selections or adding any new names. There are times when doing nothing is better and wiser then over trying. Investing is a delicate art where trying too hard can often have negative consequences.  Too often we keep trying hard to identify new investment selections and in the process forget that what we got going is already doing very well.  Just like in chemistry, a little bit of good, does not mean more is better. 

This is the stage where we are now in my view: just hold-on to the good stocks you got, try not to sell the winners too soon, just so to buy some lesser known laggards…, most of all don"t over try when things go well.  This is often the mistake even seasoned investors make, they have a good thing going and then take profits so to divest into laggards, only so to see the original premium selections move higher.  Today I dare to say to all of you valued members: chances are the Thai market will move higher yet, especially so will our winning selections.

***

South Korea is in a boom due to middle class investors waking up to stocks.

In South Korea there now is an outright boom among the middle class investing in the local stock market. Might this be repeated in Thailand?  One member wrote me recently "there is still so much room for equity investment to increase in Korea (even now), and I would think even more room in Thailand, should policy and other factors swing behind it". This in fact is a most interesting question, as if in Thailand the millions of middle class savers got going the SET would soar past 1000.  Yet, they will desperately need the help of professional brokers, which helas, is still mostly lacking.

For the first time many thousand younger professionals Koreans (and others) are taking the plunge pouring money into something they once considered too dangerous and unpredictable: the South Korean stock market. Thailand take notice!

As one such article pointed out earlier this month:
"Ms. Cho is putting about $800 each month into mutual-fund accounts run by banks. "I used to have installment savings, but the interest rates were so low," Ms. Cho says. "I saw the stock market going up...so I decided to take the risk because the returns could be higher."   This is being repeated across the country hundred, perhaps thousand fold.  (Wall Street Journal article on January 5, 2006).

South Koreans, long reluctant to put their savings into equities, are now discovering stocks in droves. This mobilization of domestic capital by individuals and institutional investors is having a significant effect on Seoul’s once-lackluster stock market.

This flood of new money has pushed the Korea Stock Exchange’s benchmark index up 54% last year, making it so the top-performing equity market in Asia despite continued weakness in the national economy and in the absence of a drastic shift in the fortunes of listed companies.  "People’s appetite for risk has increased, so there is more willingness to put assets into equities," says Rhee Nam Uh, an analyst at Merrill Lynch in Seoul, citing increased consumer-confidence levels, as was reported in a Wall Street Journal article on January 5, 2006.

This investment vogue is a positive omen for the Korean stock market, and it indicates that Koreans are recovering from their credit-card spending spree earlier this decade. It seems that instead of continuing their buying binge, consumers are investing their household savings. Here so is just another indication that consumer confidence in the economy is picking up and that savers are waking up to the long term positives in owning shares, not just real estate, bonds or even gold.

According the Asset Management Association of Korea, the amount of money invested by South Korean funds in local stocks more than tripled to 26.2 trillion won, or about $26 billion, last year, up from 8.6 trillion won in year 2004.   "This is a definitely positive for the Korean market," so are saying many managing directors of local brokers.  The local money inflow will make a real difference in a market whose direction often has been set by foreign buying and selling. The same would be much true for Thailand.  This year so far the Thai locals have been heavy, heavy sellers, even while foreigners keep being huge buyers. No doubt they traded their stocks out too early, as is often the "traders curse", when a market starts turning bullish.

Many local Korean experts say they expect the trend to keep up further, with far more South Koreans investing ever more in the equity markets directly and through mutual funds.  Further, this year, there is likely to be an added boost from a change in retirement-fund rules, which may encourage even more equity investment.  Some of these experts are predicting the KOSPI index could hit 1600 by the end of 2006, this would be another 20-30% advance.
Of course, there are always risks, as a sharp rise in interest rates or a severe drop in consumption in the U.S, a big market for South Korean exporters, could reduce investor confidence. So for that matter could a big corporate accounting scandal.

Yet many believe South Koreans" interest in equities is here to stay, suggesting a structural change is in motion. This kind of new investor participation will likely continue there -and perhaps even broaden further.  It is estimated that in 2004 some 6% of Koreans owned some listed shares. That number is estimated to have hit about 8% in 2005, and that it could reach 20% to 30% over the next several years.  Why can"t a similar trend occur here in Thailand?
Korean asset-management companies and commercial banks are putting on a full-court marketing effort, trying to sell customers on various kinds of mutual funds.  In 1999, the South Korean government started allowing banks to sell mutual funds. But not until recently -pressured by low interest rates and a dearth of credit-worthy borrowers- has this trend taken off.

There now is a receptive market among members of South Korea’s fast growing middle class, aged in their 30s and 40s, who have become more willing to consider value fluctuating stock investments.  Surely one key motivator are the record-low interest rates which in Korea as elsewhere have tamed returns on standard savings accounts and bonds.

A second reason is that government measures aimed at curbing real-estate speculation have made property, long the investment of choice for mainstream middle-class Koreans, less attractive now as other investment are better understood. Just as in Thailand now, South Koreans are also able presently to open retirement-savings accounts, tied to equity investing.

Installment equity funds are so very popular as the amount these Banks handle has reached 3.1 trillion won, up from just 1.1 trillion won in 2004.   A poster hanging in one bank branch, touted these accounts uses the slogan: "Security and profits."  All this then begs the question, is Thailand next? Could a similar trend take place here?

Nourished for Years.
For sure, around the local stock exchange things are changing all the time, but not necessarily for the better!   One key problem is the huge amount of damage local brokers have allowed over the years by subtly beating up investors with their deeply entrenched day trading mentality.  Studies after studies have shown that over time, most novice, nouveau traders, just lose money. Good stocks are sold for trading profits, the laggards are held on to -and so in little time it becomes a portfolio of laggards.

And then, to top it off, too often trading is encouraged in the less then desirable stocks, i.e. stocks with poor fundamentals.  This I must say, I never understood over the years; I mean, if you are going to day trade, at least day trade a good fundamental stock. That way if you get stuck you can come back on day. Not so here, as most of the volume are in speculative counters with no dividends and poor earnings.  Spare me from mentioning the laundry list.

One must so wonder if many of these investors/savers will ever come back? Surely once burned, twice shy. There is such an entrenched negative local "gambling" perception by savers, Thai and foreigners alike, regarding the local stock exchange.  Many long term residents in the Expat community routinely tell new comers to "just stay away".  Some have been living here for over a decade and are adamant that the SET is but a legal insider gambling den. They are mistaken yet will not change their views. And while there is some truth to this, I here have shown for nearly 10 years on the superior returns to be had with responsible, long term, good fundamental investing. They wont" look at the track record and when I correct them, they nod their head, only to continue the same old saga when I am gone.

Out for 2 hour lunch:
One real problem here are the local marketing officers (MO), the brokers. Now, I will resist here knocking them down at length about the various shortcomings (please spare me doing this yet again); as it is pervasive as it is subtle.  Next time take a good look in any broker office, are any of these MO’s reading company & or economic research or sophisticated value added investment newspapers?  Are they in their offices well before the market opens, so to scan the local and international news and reports?  Do they make company visits with analysts, then explain good fundamentals of select companies or furnish comparisons for investors?  And how long is their lunch hour?  You know the answers to these questions. 

Most MO’s are fixed in front of their screens looking at graphs, stock ticks & the share holding list of their investors" portfolio’s -and most of their thinking energy goes about whom can trade out of what, preferably today. For sure they will distribute their employers" research report, but most often not even reading it themselves.  There is rarely ever any investor excitement, only trading fever.

So I wonder what may trigger a massive change?  Surely a rising market for a period would help. Maybe I have been here too long to see this change coming? 

If you ask the MO’s why don"t they help people make long term investments and build wealth, they always have the same path single answer: the clients themselves don"t want that, they want to trade, trade, trade. And so the status quo continues.  "Asian markets are liquidity driven and Asian investors just want to trade", this is their mantra and broker management does nothing to change this witch craft.  In the meantime there is a silent minority (you are part of them), which are creating real wealth over the years, in part despite all this trading noise which ends up working to some advantage to the fundamental investor. (Thai traders and foreign investors into only the big cap’s, make the Thai market very inefficient and so full of opportunities).

So, while I would like to end this article for you on an upbeat mode and tell you, "yes I believe the Thai market can change as the Korean just did", I am afraid to make such a prediction until the day far more marketing officers see themselves as new wealth creators, instead of "Johnny come late day traders".

Many novices think I am being too critical, after all one can"t blame the brokers wanting to trade for more commissions. These novices are wrong.  As once you create new wealth for a client, you can then take some of the gains realized and open up a separate trading account, so over time comparing the performance of the two.  Yet, brokers here don"t even follow that protocol, nor seem/want to know it. As the first golden rule to good investing is: never mix your trading account with your investing account.

Hence the saga continues year after year with many trading accounts nibbling at losses and gains while the Thai investors consider anything else, including more shop-houses, but  heavens no, not that SET gambling den, perception. In the meantime the traders just keep dominating.  Let’s hope I am wrong.  One thing may change are the many new mutual funds; if more Thai savers invest in funds, the market surely will broaden in valuation…so perhaps there is some hope.

Keep posted as I will shortly upload the end of the month model portfolios updates.

Best Regards and happy monday, from the way I see it on this hill,

Paul A. Renaud.
www.thaistocks.com