Thai Middle Income Savings Trap.
The magazine “Business Report” (Thailand), had an interesting article in its February 16 edition pointing out the dangers of any developing country like Thailand falling into the middle income trap. Which it is already seems stuck in now. I suggest there is an equal danger on Thailand remaining stuck in the middle income savings trap. As the number of stock investors has just not grown over say the past 10 years.
Such well documented economic traps happen when both income levels and savings intermediation, fail to grow further.
Recently and in the past I have been critical of Thai stock brokers practices, especially versus the retail investor, one could call these the 99%. With the SET buoyant again many individuals are desperately seeking responsible investor strategies and “just seat of the pants” day trading SET stocks is not one of them.
I know from solid US experience some of the long no-no’s, regarding turning inherent investors into traders and then inevitably into loosing hard earned savings. This in turn puts them off on any future stock investing, perhaps for a life time. What a shame. In my times as broker, the practices I see here were not tolerated by responsible brokers and regulators, and this for very good reasons.
The local entrenched view by most marketing officers is being pure transactions clerks, vs. a new wealth creating brokers. This is a critical difference to understand for both clients and broker success in the long run. If 90 % of traders here loose money over time, as more open and concerned mkt. officers have told me, and since so many are traders here, no need guessing what the conclusion is. Many people call themselves investors but then act like traders with the sanction by their brokers.
Or worse, they mix-max trading with investing which is a lethal combination as it leads to holding on to laggards and selling out all the winners. You guessed it, as in time this entrenched practice means only having a portfolio of laggards.
Now multiple this times 20 years, ever since the SET grew up, and you have a long term savings-loss trap which is very damaging not only to investors but to the general economy as it nurtures and engraves a savings disintermediation problem. This remains the serious reality here which is not addressed and which asks the only pertinent question: why has the Thai retail investor crowd not grown in numbers say in the past 10 years, even while income per capita doubled -and the SET index rose considerably during this same time.
The “income gap trap risk” by contrast acknowledges all its possible reasons and seems at least to be understood if not so alarmed by local economists. This trap is where countries get stuck on around 4,000-5,000 US$ per capita year income and then can’t grow itself out of that. It’s a too common occurrence for many developing countries. But what about the rarely talked about middle income savings gap, trap?
The huge Thai savings intermediation problem in that outsized bank savings holders are just not migrating some of these to more productive savings. Just imagine if all Thai savers increased their investor returns just a few percentage points this year and beyond? This in itself would be a huge economic boost!
While not being talked about, enhanced savings intermediation is a critical part in help jumping the Thai economy past the current middle income gap. (Business Report, Thailand Feb 16th).
One place to start is by educating savers correctly as most have only a vague understanding and its rarely taught in schools. Like the important difference between investing for dividends and the medium term, vs. speculating for short term trades.
The other core issue is for the local brokerage industry to start re-invent itself by helping individuals in owning undervalued shares; not just the current far too long entrenched local practice inducing born rational consumers/investors into short term trading…, resulting so often, most often, in long term losses.
This current long vicious circle/cycle of churning and burning capital down will not end until the machinery is re-invented. The Thai brokers need to re-invent themselves but what will be the trigger event to do it? The status quo is very hard to change.
Here are the under examined risks, call it the middle income savings trap.
Individual stock investors in Thailand actually have a huge relative advantage, but few know about it. Why?, because institutions and traders focus on the high volume liquid stocks. Soo many smaller high dividend yielding growth companies are so ignored and then in fact inefficiently priced, below their intrinsic value. Even more so when compared to their higher then average earnings growth rates.
A diversified portfolio in such value shares has for many, many years produced superior (as compared to) SET returns.
The key for individuals is selecting high dividends with high growth rates in leading industries, not share liquidity. There are many such great long term investor jewels, the answer is to get information which alas the brokers sparsely provide because the same old “chicken and egg” story. Trading galore dominates and today’s commissions seems more important, then long term wealth building for investor and brokers.
If an individual stock account grows in value over time, such happy investors send referrals and so the broker has happy, larger besides more clients in time. It’s the only way for a responsible broker to build a long term growing and reputable retail brokerage business -besides help Thai savers out of the immense savings trap it now remains stuck in. But the industry needs to wake up to a higher calling, or the status quo will only entrap the current tap, ever more.
Best Regards,
Paul A. Renaud.
www.thaistocks.com
This is the last of a series of articles on the long Thai savings gap and brokers aloofness. My observations and contribution on betterments have been made for too long. From now on I will focus more what Thaistocks.com is all about: generating superior returns the old fashion way, through overall successful stock picking and the sharing of my expertise.
