Social Security Fund looks to revamp investment portfolio

Each month, a 5% deduction from employees’ salaries up to a maximum of 750 baht, is allocated to the Social Security system, with the total amount collected invested through the Social Security fund, a major investor in Thailand’s capital markets.

To align with the current situation and ensure the fund remains adequately capitalised, the strategic investment plan (2020-2024) has been revised to allow for more investment in Thai debt securities, foreign equities, and off-market securities, which are expected to yield higher returns and diversify risk. Foreign investments help reduce concentration in domestic assets and manage the fund’s risks to achieve consistent long-term returns, rather than relying solely on the fluctuating returns of the domestic market.

However, while acknowledging the potential for high returns, not all analysts are convinced that “going foreign” is a good idea, mainly due to the volatility of exchange rates.

A review of the Social Security Office’s current investment portfolio reveals significant holdings in Thai stocks, particularly within the SET50 index, which comprises the top 50 companies by market value on the Stock Exchange of Thailand (SET). As of now, the top 10 holdings include:

TT Public Company Limited (PTT)
CP All Public Company Limited (CPALL)
The Siam Cement Public Company Limited (SCC)
Advanced Info Service Public Company Limited (ADVANC),
Bangkok Dusit Medical Services Public Company Limited (BDMS)
Kasikornbank Public Company Limited (KBANK)
Bangkok Bank Public Company Limited (BBL)
Airports of Thailand Public Company Limited (AOT)
SCB X Public Company Limited (SCBX)
Bangchak Corporation Public Company Limited (BCP)

The total value of these 10 stock holdings exceeds 103 billion baht.

The Government Pension Fund (GPF) views SET50 stocks as attractive due to their reasonable valuations and potential for dividends.

Songpol Chevapanyaroj, Secretary General of the GPF, noted that investing in SET50 companies, which are considered market pillars, provides opportunities for capital appreciation and dividend income.

“The Thai stock market still offers investment opportunities with stocks that are not overly expensive relative to their fundamental values and provide good returns. Some stocks, particularly in the SET50, are expected to benefit from the economic recovery. The GPF maintains its focus on investing in fundamentally strong stocks and has not altered its investment policy regarding both domestic and international investments,” Songpol said.

Terdsak Taweethiratham, Deputy Managing Director of Research at Asia Plus Securities, noted that investing in SET50 stocks remains appealing due to the potential for good returns given their valuation. However, the Social Security Fund’s policy necessitates investment in large, stable companies, which limits options primarily to SET50 stocks. Investing in smaller stocks may pose liquidity risks.

The growth in individual SET50 stock values cannot be clearly predicted due to various uncertainties, but overall, SET50 stocks are expected to yield a dividend return of around 3% per annum.

“Investing in foreign stocks or other risky assets must align with the fund’s regulatory framework,” Terdsak said.

Wilasinee Bunmasungsong, senior director of Research at Globlex Securities, pointed out that SET50 stocks are often a criterion for various funds, including the Social Security Fund, which seeks to invest in fundamentally strong stocks. While investing abroad presents opportunities, it also carries risks related to exchange rate volatility, especially given the current weak Thai baht. Investing abroad can be beneficial if the baht continues to weaken, but if the baht strengthens, returns from foreign investments may decline.

Jessada Sookdhis, director of Finomena Securities, mentioned that the Thai Social Security Fund emphasises safe investments. Increasing risk exposure requires careful consideration due to asset size and liabilities, which prevents excessive risk-taking.

Although the risk level cannot be precisely defined, the fund could benefit from a higher focus on foreign equities and debt securities, potentially offering higher returns than domestic investments.

“Historical data over the past decade shows an average global stock market return of about 10%, with the US market yielding 20%, while Thai stocks, especially in SET50, have offered lower returns due to less rapid corporate earnings growth. Investing abroad offers higher return potential, as evidenced by other international social security funds that have achieved good returns through flexible, global investment policies,” Jessada said.