The Stock Exchange of Thailand (Bloomberg filepix)

(Oct 30): Thailand’s recently-launched US$4.5 billion (RM19.77 billion) state-controlled investment fund has already started buying shares and is considering equity derivatives to protect its capital, according to one of its co-investment managers.

Vayupak Fund I, which raised money from around 50,000 Thai investors last month, will “gradually” invest about 90% of its assets in local equities, said Chavinda Hanratanakool, the chief executive officer of Krung Thai Asset Management Pcl. She is considering expanding the team to boost its expertise in equity derivatives, which the fund will use in the future, if it decides the downside risks are too high, she said in an interview in Bangkok.

The fund is a key part of a broad effort to boost confidence in the local capital market, which has been hurt this year by falling stock prices, worries about household debt and political instability. Thailand’s stock market, one of the worst performing in the world earlier this year, has jumped around 14% since hitting an August low.

The Vayupak fund, the latest iteration of an experiment that began two decades ago under former prime minister Thaksin Shinawatra, faces a difficult balancing act: It is trying to support stock prices, encourage individual investors into capital markets, and direct money towards companies that meet high corporate governance standards. Efforts by governments and central banks in other countries to juice stocks, from Japan to China to Malaysia, have met with mixed success, but Chavinda said she is optimistic.

Krung Thai Asset Management and MFC Asset Management Pcl are the Vayupak Fund’s co-managers, according to the Stock Exchange of Thailand (SET).

The plan is for the fund to act as a buffer for stock prices, which will be driven higher by “fresh money” in the next two years, said Chavinda. She thinks the benchmark SET index will climb to as much as 1,600 in 2025; that implies a rise of around 10% from current prices.

The size of the fund “should be sufficient for us to move the market,” she said. “Not to manipulate the market, but to support it.”

Vayupak’s managers bought bonds after launch, helping to keep the fund liquid as it gradually increases its investments in the stock market, said Chavinda, a three-decade market veteran who is also chair of the Association of Investment Management Companies in Thailand.

The fund, which redeems in 10 years, offers a guaranteed annual return of between 3% and 9%. That may not look like a high bar to clear for an emerging market, but Thailand’s stock market fell around 15% last year and is slightly down over the past decade. The economy is likely to expand 2.7% this year, and around 2.9% in 2025, the Bank of Thailand said in a statement on Oct 16.

At the moment, Vayupak Fund I is buying around 2.5 billion baht (US$74 million) of stocks every day, according to Tareck Horchani, head of prime brokerage dealing at Maybank Securities Pte Ltd. “If it continues at this pace, it will provide a buffer to the Thai market at least until the end of year, but we need to see how the market reacts after the US elections.”

The size of the Vayupak Fund I represents around 0.8% of Thailand’s roughly US$534 billion equity market, according to data compiled by Bloomberg.

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