I find it rather fascinating that there hasn’t been more talk about the new Sustainable Equity Fund (SEF) which is supposed to be approved the government and then replace the Long Term Equity Fund (LTF) and be enacted next year. So, here’s a quick Q&A about it.
What is the LTF?
The LTF is an investment vehicle that promoted investment into equities in the Thai Stock Market and was a tax efficient vehicle. The positive, in my opinion, is that it created a buyer in the Thai market that allowed companies listed here to have access to capital that would have been limited to a few major retail and foreign investors in the past. Which has then led to the continued development of the financial markets in Thailand.
What is the SEF?
It is a similar vehicle to the LTF however the key differences are in the investment policies. Both have a 7-calendar year holding period to qualify for a tax exemption.
What are these differences?
- LTF is required to invest not less than 65% in Thai Equities
- SEF requires not less than a 65% investment in equities under the SET Thailand Sustainability Investment (SETTHSI) index and infrastructure funds.
- LTF – The maximum amount that each tax payer can buy is up to 15% of their annual income or a maximum of THB 500,000 p.a.
- SEF – The maximum amount that each tax payer can buy is up to 30% of their annual income or a maximum of THB 200,000 p.a.
What would the impact be for difference #1?
This could be huge for certain names for example infrastructure funds may keep running. And the conspiracy theorist in me says that this just an avenue for the government to use tax payers capital to fund their infrastructure projects, so I wouldn’t be surprised to see the Thailand Future Fund (TFFIF) run.
For stocks specifically, well if you look at the SETHSI Index names and compare them to the SET100, then names such as BH, CKP and THAI are going to most likely to be sold out.
What would the impact be for difference #2?
I wouldn’t be surprised to see less inflow into the Thai equity markets from this change in vehicle. How much less? Well currently LTF’s average THB 35 bn p.a. for the past few years, one could assume that with the lower buying limit that there will be less capital coming in. How much less? -10%? -20%? Yes these are just guesses but given the fact that Thailand still has the highest inequality in the world it shouldn’t be a surprise. And I doubt that the average salary person would be able to invest more than they do today given the high debt ratios we are seeing in Thailand.
Should this be approved:
- Watch the infra funds
- Stay away from names that are in the SET50/SET100 but not in the SETHSI