Thai funds grow but fees lag http://www.reuters.com/article/bankingfinancial-SP-A/idUSBKK8331120070328
Wed Mar 28, 2007
By Ploy Chitsomboon
BANGKOK, March 28 (Reuters) - Thailand's $40 billion asset management industry is growing fast, but fund executives do not expect bumper fees as competition intensifies and most consumers buy low-cost debt funds. Thais favour debt funds, even though they get tax rebates on investing in stock funds. The reason is a mixture of risk aversion, memories of getting burned during the 1996-97 Asia crisis and a lagging domestic market -- Bangkok was the worst performer in Asia last year.
"In Thailand, one main driver that has helped boost industry growth all these years is surely fixed-income," said Maris Tarab, chief of ING Funds (Thailand), which has 9 percent of the Thai mutual fund market.
"It has always been safe and simple and right for those who want just a little bit more return than the bank rate," Maris said, referring to bank deposit rates of 3 percent for deposits, compared with the 4 percent for most funds.
ING Funds, majority owned by ING Group (ING.AS: Quote, Profile, Research) and ranked 5th with the assets of 118 billion baht, plans to launch 12 of the 20 fixed incomes funds expected in Thailand this year.
For details of top 10 fund companies and assets under management, click on [nBKK109433]. That means more choice for consumers but fewer fees for the fund industry. Some fund companies now charge fees as low as 0.10 percent a year for debt funds, down from 0.20-0.50 percent over the past four years, and 1.0 percent for equities funds, down from 1.5 percent last year.
"You do everything you can to get the client," Vana Bulbon, chief of UOB (Thai) Funds (UOBH.SI: Quote, Profile, Research), which manages about 67 billion baht in funds.
Though the growth of management fees in the industry has dropped to next to nothing over the past few years, fund managers said they were willing to take smaller fees to win more clients.
DEBT IS KING
Most Thai savers in a population of 65 million keep their money in banks, with only 10 percent investing in funds.
Fund assets grew 6.2 percent this year through the middle of March after 30 percent growth in 2006 and 50 percent annual growth since 2002. Fixed income funds account for more than 80 percent of the industry's assets, a ratio that has barely changed in recent years, followed by 10 percent of the next biggest mixed-assets, property funds, equities funds, and others, the Association of Investment Management Companies (AIMC) shows. "Over the year we should see at least 30-40 percent growth coming from debt funds, while equities funds won't be doing all that well as people have zero confidence in the market," said Maris, whose firm will not launch any equity funds in 2007.
Among firms launching debt funds this month are TMB Asset Management (TMB.BK: Quote, Profile, Research), which is selling 5 billion baht of 6-month debt funds from March 19 to March 27. Number two Kasikorn Asset Management (KBAN.BK: Quote, Profile, Research) also plans one or two debt funds a month.
Open-ended debt funds are the most popular types launched in Thailand since 2005, having a market share of more than 37 percent in the first half of March, 35 percent in 2006 and 28.7 percent in 2005, the AIMC says.
EQUITIES UNDERPERFORM
Investors in long-term equities funds (LTF) and retirement mutual funds (RMF) can deduct up to 300,000 baht per year from their taxes. Even so, the segment's size is still tiny -- only 5 percent of the industry. One reason is Thailand's wobbly stock market (.SETI: Quote, Profile, Research).
Blame uncertain politics following a September coup by a military promising elections within a year, a stronger baht, slowing economic growth and weakening consumer confidence, said Kenneth Koh, head of research for Asia outside Japan at Lipper.
Shock capital controls announced and rolled back December didn't help either.
As a result, Thai equities funds fell 0.42 percent on average between Jan. 1 and March 16, on top of a drop of 3.54 percent in 2006. "The market is unlikely to move and therefore this year could be a better year for fixed-income, especially with two rate cuts expected by the market," Koh said.
Last month, the Bank of Thailand cut its key rate by 25 basis points to 4.50 percent, its second cut in six weeks, to boost the economy. Short-term bond yields have fallen steadily to 4.04 percent from 5 percent at the end of 2006 and about 4 percent at the end of 2005. "At a time of market uncertainty, bond funds can also be a safe heaven," Maris said.
($1 = 32.05 Baht)
((Editing by Jack Reerink; Reuters Messaging: ploy.chitsomboon.reuters.com at reuters.net;+662 648 9735)) Keywords: THAILAND FUNDS/OUTLOOK
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