Thailand’s $4.5 Billion Fund Is Buying Stocks, Eyes Derivatives
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- 30 Oct 2024
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Thailand has recently launched a state-controlled investment fund, the Vayupak Fund I, with a substantial capital of approximately $4.5 billion (RM19.77 billion). This initiative aims to bolster the local capital market, which has faced challenges this year due to declining stock prices, rising household debt, and political instability. The fund has already begun purchasing shares and is contemplating the use of equity derivatives to safeguard its capital.
Investment Strategy and Goals
Chavinda Hanratanakool, the CEO of Krung Thai Asset Management Pcl, one of the fund's co-managers, stated that the Vayupak Fund I plans to invest about 90% of its assets in local equities gradually. The fund has attracted around 50,000 Thai investors and is seen as a crucial component of the government's strategy to restore confidence in the stock market.
The Thai stock market has been one of the worst performers globally earlier this year, but it has rebounded approximately 14% since hitting a low in August. The Vayupak Fund aims to act as a stabilizing force, supporting stock prices and encouraging individual investors to participate in the capital markets. Additionally, the fund seeks to direct investments toward companies that adhere to high corporate governance standards.
Balancing Act
The Vayupak Fund I faces a challenging balancing act: it must support stock prices while also fostering a healthy investment environment. Chavinda expressed optimism about the fund's potential impact, noting that it could help drive the benchmark Stock Exchange of Thailand (SET) index to around 1,600 by 2025, representing a potential increase of about 10% from current levels.
The fund's size is significant, accounting for approximately 0.8% of Thailand's equity market, which is valued at around $534 billion. Chavinda emphasized that the fund's capital should be sufficient to influence the market positively, stating, “Not to manipulate the market, but to support it.”
Current Activities and Future Plans
Since its launch, the Vayupak Fund has been actively purchasing stocks, with reports indicating that it is buying around 2.5 billion baht (approximately $74 million) of stocks daily. This level of investment is expected to provide a buffer for the Thai market at least until the end of the year. However, market reactions, particularly following the upcoming U.S. elections, will be closely monitored.
In addition to equities, the fund has also invested in bonds to maintain liquidity as it gradually increases its stock market investments. The Vayupak Fund I offers a guaranteed annual return of between 3% and 9%, which, while modest, is a crucial consideration given the recent performance of Thailand's stock market, which fell around 15% last year and has seen little growth over the past decade.
Economic Context
The broader economic context is also important. The Bank of Thailand has projected a GDP growth of 2.7% for this year and around 2.9% in 2025. These figures highlight the challenges facing the Thai economy, which the Vayupak Fund aims to address by stimulating investment and confidence in the capital markets.
The Vayupak Fund I represents a significant effort by the Thai government to stabilize and invigorate its capital markets amid challenging economic conditions. By strategically investing in local equities and considering the use of derivatives, the fund aims to support stock prices and encourage greater participation from individual investors. As it navigates the complexities of the market, the success of the Vayupak Fund will depend on its ability to balance immediate market support with long-term investment strategies that promote sustainable growth.
