SET fund a step too far
The Covid-19 pandamic has disrupted supply chains and tourism activities around the world, causing growing impacts on the global economy. Thailand is significantly affected given its economy largely relies on exports and tourism. Concerns over the outbreak and the economic downturn have strongly affected investment in the Stock Exchange of Thailand (SET). The SET index has tumbled since early in the year and crashed last week. On Friday, the SET triggered its circuit breaker, the second in a week and the fifth ever, after the index nosedived to the lowest level in almost eight years.
The slump of the index prompted the government to come up with the idea of launching a huge stabiliser fund to support the SET. According to Deputy Prime Minister Somkid Jatusripitak, the fund should be big enough to accommodate the domestic equity market, which is worth around 16-17 trillion baht, almost equivalent to the country’s GDP, which was 17.36 trillion baht in 2019.
Such a stabiliser fund is not new for Thailand. There have been three funds established previously. The first fund worth one billion baht was launched to curb the market crash during 1987’s Black Monday. The second worth 10 billion baht was established in 1992 to ease the impact of the Black May protest in Bangkok. The third worth 10 billion baht was established in 2001 after the 9/11 attack. Those three funds proved effective in stabilising the stock market.
However, there are two critical questions about the new fund concerning its effectiveness and appropriateness. To be effective, the scale of funding required for the fund will be much higher than that of the previous ones. This is because the current stock market capitalisation has ballooned to more than 13 trillion baht, compared to 1-2 trillion baht when the past three funds were introduced. It is expected the new fund would need at least 100 billion baht for it to become meaningful to the market these days.
Where else can such huge funding come from if not from the state coffers? The deputy prime minister hinted the fund will be sourced from government agencies and the private sector, insisting the government will not allocate fiscal budget to support the fund.
Even so, the contribution of state agencies would inevitably cost the state coffers and draw on tax money, either directly or indirectly.
It is also questionable whether it is appropriate to establish such a huge fund to help investors, especially the rich. Most top billionaires in this country have their businesses listed in the SET. Their wealth in terms of stock value has dropped 20-40% due to the market crash, but they are still very rich.
The stabiliser fund will enrich the richest people and widen the income gap. Of course, a large number of retail investors would also benefit from it, but they should have realised their investment was made at their own risk.
The stock market reflects the economic outlook and fundamentals. Whenever such factors are not promising, any fund launched to bail out the market will not be fruitful and sustainable, and could even be money wasted.
Instead of throwing money at supporting the stock market, the government should use state funding to boost local consumption via tax measures. It should immediately invest in and import a large number of Covid-19 testing facilities and then subsidise the testing for all. Timely and affordable testing for the virus can prevent the outbreak from getting worse.