The Bank of Thailand has completed an about-face and agreed to waive the 30 per cent reserve rule for foreign investors in the Stock Exchange of Thailand’s first exchange-traded fund, the
The Bank of Thailand has completed an about-face and agreed to waive the 30 per cent reserve rule for foreign investors in the Stock Exchange of Thailand’s first exchange-traded fund, the ThaiDEX SET50, which began trading on September 6.
The central bank had initially declined requests by the exchange and the Securities and Exchange Commission to waive the 30 per cent reserve rule for foreign investors, arguing that heavy fund inflows could put pressure on Thai currency, the baht. It was also worried that other mutual funds might seek an exemption if the reserve requirement was waived for the ETF.
The reserve requirement, imposed on December 19 last year, requires non-resident investors to make a cash deposit at the central bank totalling 30 per cent of the value of transactions in bond, mutual funds and property funds. The rule is designed to discourage short-term speculation that could results in rapid inflows and outflows of capital and potentially destabilise the currency.
Up to now the central bank has defined ETFs as a kind of mutual fund, which are subject to the reserve requirement, but officials have now decided that ETF units should be considered capital securities and thus exempted from the rule. However, under existing regulations foreign investors must trade securities through special non-resident baht accounts.
The decision was welcomed by the stock exchange as well as by One Asset Management, which is fund manager for the ThaiDEX ETF. According to the firm’s president Somjin Sornpaisal, the waiver of the reserve rule will encourage foreigners to use the ETF to invest in the Thai market.
The fund, which has a capacity of THB5bn (some USD154bn), aims to invest an average of at least 65 per cent of its net asset value in each accounting period in equities, with the remainder invested in debt instruments, money market instruments, cash deposits or derivatives to replicate the return of the Stock Exchange of Thailand’s benchmark SET50 Index.
