Investment Outlook 2016 & Retirement Savings in Thailand

Transcription

1 Investment Outlook 2016 & Retirement Savings in Thailand May 2016 Win Phromphaet, CFA Chief Investment Officer CIMB-Principal Asset Management

2 Investment Outlook 2016 & Retirement Savings in Thailand Global & Thailand Economic Outlook Overview of Retirement Savings in Thailand A Closer Look at Pension Investments New Idea: Target Date Retirement Plan 2

3 Global Economic Outlook Global GDP Growth (%) F Diff Jan E Diff Jan-16 World GDP Growth Advanced Economies US Europe Japan China Developing Economies Asia Latin America Middle East Source: IMF, April 12,

4 Thailand Economic Outlook Key Driver Public and Private Infrastructure Projects Public Investment will support Thailand Economic growth in Source: EIC of SCB

5 Thailand Economic Outlook Key Driver Tourism: Mario Effect 1,200,000 1,000,000 Indonesia Vietnam Philippines China 800, , , ,000 0 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Tourism Authority of Thailand (TAT) has appointed Mr. Mario Maurer as a sort of cultural ambassador to China and three ASEAN (Indonesia, Philippines and Vietnam). 1,200,000 1,000, , , , , Gap ('15-16) Mario Effect Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Department of Tourism, CPAM

6 Thailand Economic Outlook Key Challenges Drought Crisis Thailand drought crisis is possible to extend to mid-year of 2016 which is a downside risk to GDP growth. Political Issue (New Election In 2017) New general election in 2017 is a positive sentiment to domestic consumption and investment in 2H16. Source: Hydro and Agro Informatics Institute, ilaw Club

7 Investment Outlook The World of Low Interest Rates Source: Bloomberg and CPAM -1.0 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 FED is likely to postpone rate hike until end of 2016, or no hike at all. ECB and BOJ need to do more stimulus BOT to keep rates unchanged at 1.50% for rest of year. Fed ECB BOJ BOT

8 Investment Outlook The World of Low Interest Rates For the first time in history, Thai 10y treasury yield is lower than that of the US. Strong demand from pension funds, insurance companies, and, most recently, fixedincome mutual funds, will continue to drive long-term rates to remain low. Data as of 30 Mar 2016 Source: ThaiBMA, Bloomberg 8

9 Investment Outlook The Search for Yields Investment Yields as of end 2015 Div Yield of CPAM iprop Div Yield of Singapore REITs Div Yield of Thai PF&REITs Div Yield of Thai Equity year govt. bond year fixed deposit 1.5 Source: Bloomberg, Bank of Thailand and CPAM calculation

10 Thailand Retirement Savings: the 3 Pillars Voluntary Savings: LTF/RMF, Life Insurance, Credit Union National Savings Fund 0.4 mil Extending Coverage? Government Pension Fund 1 mil. Provident Fund 2.8 mil Making it Mandatory Pay-Go Pension for Government Officers 2 mil Social Security Fund 11.5 million Formal Sector million Informal Sector 25 million

11 Thailand Retirement Savings: the 3 Pillars Source:

12 Social Security Fund: Old-Age Pension Inception 1990 (Old-age Pension: 1998) Type Defined Benefit SSO AUM 1.2 trillion Baht (US$34 billion) Coverage Contribution 11.5 million private employees 400,000+ employers 3% from employer + 3% from employee Wage cap of 15,000 Baht/month Benefit Monthly pension for life (around 3,000 7,000 Baht for office workers) Challenges At the current contribution rate, the fund may deplete in years Need to spin off investment unit for greater independence and efficiency SSO Investment

13 Provident Funds Type AUM Coverage Contribution Benefit Challenges Defined Contribution 0.9 trillion Baht (US$25 billion) 2.9 million employees (inc. State Ent.) 16,000+ employers (out of 400,000+ total) 3% from employer + 3% from employee New law allows yee to cont up to 15% Lump sum at retirement Need to expand coverage or making it mandatory Poor investment choices by members Alt 9% Stocks 15% Bonds 76% PVD Asset Allocation as of Mar 2016

14 Provident Funds: Updates Positive Development Beginning end of 2015: - Employees may contribute up to 15% - Employees may transfer PVD to new Employer while retaining tax benefit (must be complete in 1 year) Update on Mandatory Provident Fund - Ministry of Finance to enforce by Decentralized investment but centralized fund administration - To begin with co. with 100+ employees, then 10 (4 th y) and 1 (6 th y) - Listed Co., State Enterprises, Public Org., and Co. receive investment promotions/concessions must set up in year 1 - Proposed step-up contribution rates, with wage cap of 60,000 Baht - Year 1-3: 3% + 3% - Year 4-6: 5% + 5% - Year 7-9: 7% + 7% - Year 10+: 10% + 10%

15 Provident Funds Source:

16 A Closer Look at Pension Investments Asset Allocation of Selected Pension Funds as of % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% SSO GPF PVD CalPERs Yale Alternative Foreign EQ Domestic EQ Foreign Bonds Domestic Bonds

17 A Closer Look at Pension Investments

18 New Idea: Target Date Retirement Plan Target Date Retirement Plan also known as a lifecycle fund is fund designed to provide a simple investment solution through a portfolio whose asset allocation mix becomes more conservative as the target date (usually retirement) approaches. Statistics in the US Launched: 1990s Asset Size: > $800 billion Participants: > 20 million Employers with TD as Qualified Default Investment Alternative: 86%

19 New Idea: Target Date Retirement Plan

20 New Idea: Target Date Retirement Plan

21 New Idea: Target Date Retirement Plan Expected Return from beginning to retirement = 7% p.a. Statistics for Thailand Launched: 2014s Asset Size: > THB 1 bn Participants: > 8,000 Employers with TD as option: > 30

22 Biography of Win Phromphaet, CFA Position: CIO, CIMB-Principal Asset Management Education: B.A. Econ (International Program), Thammasat University MBA (Finance), Rotterdam School of Management, Erasmus University, the Netherlands (Royal Thai Government Scholarship) Chartered Financial Analyst Others: Former Head of Investments, Social Security Office Vice President, CFA Society of Thailand Director, Association of Investment Management Companies (AIMC) Finance Lecturer at Thammasat, NIDA and ABAC Awarded Outstanding Civil Servant (2006) and Rising Star Economist (2014)