SIRIPORN CHANJINDAMANEE
Article from THE NATION January 10, 2012 1:00 am
The mutual fund industry is expected to come under fierce competition as banks step in to fight for deposits to finance economic expansion.
The increasing pressure will find fund management companies taking one of two strategies - go after a niche market or after market share.
Worawan Tharapoom, president of the Association of Investment Management Companies, expects assets under management (AUM) to remain flat this year. This is because commercial banks are likely to draw money into the banking system through new products and then extend loans to help support the |government's spending on infrastructure development.
All asset management companies need to make adjustments in managing funds, she said yesterday.
In the past two to three years, the industry enjoyed extraordinary growth in AUM thanks to excess liquidity in the system. The economy recovered last year and was likely to continue to pick up this year, while banks would pull back money into the system, drying up some liquidity, he said.
In 2011, the mutual fund industry was expected to stay at Bt2 trillion, the same level as in 2010, as investors shifted into higher-return bank deposits after fixed-income funds investing in Korea and Europe came due.
"Next year (2012), all asset management companies have to make a lot of adjustments to prevent money flowing to others," she said.
"Two models could be seen. One focuses on increasing market share and the other emphasises niche marketing through newly developed products. So, there will be no limit to the competition," she added.
Patchara Samalapa, managing director of Kasikorn Asset Management, forecast the industry's AUM to rise a slight 1 per cent this year due to the unfavourable outlook for national growth. More than that, asset management firms grew rapidly, especially in deposits, for the past two to three years due partly to the policy of those backed by banks.
In the next two to three years, savings through funds was likely to become more difficult. The big issue was how to retain existing |customers.
"Although competition will be higher to maintain the customer base in 2012, it is expected to go together with the knowledge enhancement of investors and new products to serve customers. Most customers set returns as their priority," she said.
Chotika Sawananon, managing director of SCB Asset Management, also said mutual funds have to make adjustments, seek innovative investment products and expand to more modern distribution channels. This would help them navigate through the volatility in investment |conditions and serve retail and |institutional demand.
Besides debt instruments in developed and Asian countries with low possibility of a credit-rating downgrade, gold and stocks in Asian emerging markets were also investment alternatives in 2012, she said.
Diversification was essential for asset allocation to mitigate portfolio risks and volatility with consistent long-term returns.
"Investing more in foreign assets - like global equity instruments, emerging equity instruments, global debt instruments, emerging debt instruments, commodities or absolute-return funds - could increase opportunities besides local investment," she said.
The industry’s AUM would increase 10-15 per cent this year due partly to the implementation of the Deposit Protection Agency Act on August 11.
The protection for each investor will be limited to Bt1 million for deposits in any financial institution and this was likely to lead them into becoming more cautious about allocating their funds.
Depositors are expected to shift money to both private funds and low-risk mutual funds with policies to invest in treasury bills and government bonds.
As of December 2, 2011, the industry's AUM stood at Bt2.02 trillion, of which Bt84.66 billion was in 99 retirement mutual funds and Bt134.60 billion in 52 long-term equity funds.
Article from THE NATION