Consumer Insights: Gold Investing, Thailand

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Consumer Insights: Gold Investing, Thailand

Investing in gold has long been a tradition in Thailand, coupled with the perception that it has a high return and low risk. It still remains one of the most popular investments for all Thais. In addition to physical gold, it is also possible to trade Gold Futures on the Thai Stock Exchange. However, the increased digitalization might change this tendency in the future by attracting younger generations to invest in funds, using digital channels. Digital assets investments are also growing in the country, with a boost in Bitcoin and Ethereum trading. Gold traders are adapting to modern times by offering various ways of purchasing gold, such as online, through mobile apps or even blockchain.

1) Psychographic Profile: Personal Gold Investors in Thailand

i) Attitudes
  • Thai people buy gold for various reasons, including investments, but also as ornaments or as gifts for events such as newborns and weddings.
  • The Thai physical gold market is larger than its neighbors with a comparable population such as Vietnam or Malaysia, boosted by strong local demand, as well as a strong sales network.
  • In Thailand, personal investors tend to think that investing in equities and shares carries too much risk due to the volatility of the stock market, and they prefer to invest in gold, which they see as a safer alternative.
  • However, academic studies have found that as opposed to other regional countries such as the Philippines and Vietnam where gold is seen as a substitute for equities, gold in Thailand represents a complement for this type of asset.
  • Gold in Thailand is considered a security.
  • It is often used to safeguard wealth against loss in value, or currency depreciation.
  • This has been the case even before the credit crunch, and Thai investors have always been wary of keeping their wealth in banks.
  • One reason for that is for tax purposes, which is one driver for keeping savings in gold.
  • In the country, the price of gold is avidly followed by everyone, and appears everywhere, including in newspapers on a daily basis.
  • Thai personal investors love to increase their personal gold reserves for decades, and even from generation to generation, to protect themselves and their family against hardship.
  • Some gold investors can keep it since their grandfather's time and sell when prices reach a peak.
  • This was the case in August 2020 when a customer sold gold that was purchased 70 years ago.
ii) Emotional Drivers
iii) Functional Drivers/Needs
  • The majority of Thais purchase gold as an investment as they believe that this asset will rarely lose its value, and that it is a safe instrument to avoid losing family money.
  • They also know that if they possess gold, they can always sell it in case of hard times.
  • This has been the case during the COVID pandemic when people were forced to sell their gold due to losing their usual income in order to generate some cash.
  • Thai investors see gold as a financial hedge against economic downturns.
  • The fact that it is very easy to buy and sell gold in Thailand also plays a role for personal investors in their drive to buy it as an investment.
  • As there are many shops and entire districts that allow the physical trading of the commodity, investors can easily perform operations, whether it is selling or buying the precious metal.
  • The daily going rate is transparent, and posted in large signs outside shops.
  • It represents an easy type of investment for the majority of Thais, who do not need to have access to brokers, understand complex financial markets, or need to follow the evolution of the stock market.
  • They can easily keep up with the price on a daily basis without the need for a computer or the internet, and buy or sell very easily in any of 7,000 shops across the country.
  • Another reason why gold appeals to investors is because VAT is not applied to gold nugget sales.
  • This means that sales and purchases can be made without any tax being paid, as opposed to other products in Thailand, who are taxed at 7% VAT.
  • This encourages the trading of the commodity in the country.
  • Thai personal investors also believe that the returns on gold investments will be higher than bank savings.
  • A research investigating saving behavior and saving determinants of Thai people found that the objective of saving was mainly for retirement purposes, and that Thai people relied more on traditional saving instruments such as banking deposits and properties, rather than financial instruments such as securities.
  • The main factors that had an influence on the decision to save and which saving instrument to choose included the financial situation of savers, their attitude towards and perception of risk, the potential return on investment, the convenience to buy or sell an asset, the financial literacy of savers, as well as the ease of access.
  • In terms of where savers get information about their decision to save, it could be family but also other sources such as banks, brokers, the media, as well as investment brochures.
  • The majority of investors or around 56.3% make their own decision, whereas others receive advice from their spouse, friends, children, or relatives.related
  • The research found that gold ranked second in the top saving types, alongside bank deposits and real estate, with 63% of savers using it.
  • It was also revealed that all savers ranked gold as a market that they have knowledge about, as opposed to other types of savings such as corporate bonds or equity funds.
  • Thai people admitted that their reason to have savings in gold were related to the possibility of wearing it, but also because it is easy to trade in Thailand, with a high liquidity.
  • Their reason for not choosing gold as a saving were related to a lack of money, and a fear of physically losing it.
  • In terms of savings allocation, Thai investors choose to allocate the largest share of their savings (24%) into real estate, because housing is a basic need, and also because real estate is also considered a hedge to protect against inflation.
  • The second most popular saving instrument is in the form of bank deposits. This is driven by the feeling for Thai investors that it is convenient, easy to access, and carries low risk.
  • Thai savers also have the perception that investing in gold has a low risk but offers return rates close to other financial securities that tend to be considered more risky.
  • This understanding drives them towards investing more in gold.
  • Thai savers consider that gold has the highest return of all investment instrument.
iv) Habits
  • Thai people have the habit of investing in gold in order to use it for many reasons.
  • These include selling when needing cash for an emergency, losing a bet, paying back a loan, buying something expensive, and many other reasons. It is viewed as a simple solution to generate cash when needed the most.

2) Stages of the Investment Journey of a Thai Gold Investor.

Awareness
  • Thai investors consider gold because they consider it to be safer than other assets, especially during crises.
  • It was revealed by a study that all savers ranked gold as a market that they have knowledge about, as opposed to other types of savings such as corporate bonds or equity funds.
  • Some investors in Thailand, when faced with choosing an investment instrument, are limited by either a minimum required that is too high for them, or they might be afraid that the issuer might default in the case of bonds.
  • Faced with the complexity of financial investments, as well as uncertainty over the rate of return, Thai investors prefer to be conservative and reduce risk by investing in gold.
  • The convenience of the gold market makes it also an incentive.
  • A research investigating saving behavior and saving determinants of Thai people found that the objective of saving was mainly for retirement purposes, and that Thai people relied more on traditional saving instruments such as gold and properties, rather than financial instruments such as securities.
  • The main factors that had an influence on the decision to save and which saving instrument to choose included the financial situation of savers, their attitude towards and perception of risk, the potential return on investment, the convenience to buy or sell an asset, the financial literacy of savers, as well as the ease of access.
Research/evaluation
Decision making
  • The decision to buy gold as an investment is driven by a perception that it has higher returns and is less risky than financial investments.
  • Investors aim to make a decision on what to invest basing themselves on their awareness or perception of different assets and they choose to invest in the one that brings them the highest return for the level of risk that they deem acceptable.
  • Between 2007 and 2017 gold returns reached 16%, the second highest return behind Thai securities with 18%.
  • In addition, gold is considered as an asset that can reduce the overall risk of a portfolio.
  • In terms of where savers get information about their decision to save, it could be family but also other sources such as banks, brokers, the media, as well as investment brochures.
  • The majority of investors or around 56.3% make their own decision, whereas others receive advice from their spouse, friends, children, or relatives.
  • The research found that gold ranked second in the top saving types, alongside bank deposits and real estate, with 63% of savers using it.
  • Thai people admitted that their reason to have savings in gold was related to the possibility of wearing it, but also because it is easy to trade in Thailand, with a high liquidity.
  • Their reason for not choosing gold as a saving was related to a lack of money, and a fear of physically losing it.
Investment/Purchase
  • The live price of gold in Thailand is published on the website of the Gold Traders Association of Thailand.
  • The purchase can be made in one of the 7,000 shops trading gold, but also on company websites, through mobile apps, and even blockchain.
  • In addition to purchasing physical gold, it is also possible in Thailand to purchase gold futures, and these financial products are listed on the national Stock Exchange.
  • This type of investment and paper exchange is backed by Thai Gold Traders Association members.
  • Currently, Thai gold investors have the choice between 2 types of gold futures contracts offered by the Thailand Future Exchange Public Company Limited (TFEX).
  • They can purchase 50 Baht Gold Futures or/and 10 Baht Gold Futures.
  • A third type of gold future was introduced in 2017, called Gold-D, with the particularity of being quoted in Dollars, despite being settled in Thai Baht.
  • Another difference with the two other contracts is that it involves physical delivery, as opposed to the others that are cash-settled.
  • Finally, a fourth offering was added to the range of gold products in 2018 with the Gold Online Futures, traded and cash-settled in Thai Baht.

3) Insights on the Impact of Digitalization on Personal Investing in Thailand

i) Insight 1: Growth in Digital Asset Investments
  • Recently, investment in digital assets has started to gain popularity in Thailand with more and more investors interested in this type of instrument, as they see it as rapidly generating high returns.
  • However, the fact that it is a relatively new type of asset means that investors need to understand it prior to taking the step.
  • Previously, digital assets were understood to be limited to digital currency or Cryptocurrency.
  • However, the term is larger and applies also to digital tokens, as well as other digital products and services.
  • In Thailand, it is possible to invest in Cryptocurrency as well as digital tokens.
  • Thai investors are familiar with Cryptocurrencies such as Bitcoin and Ethereum.
  • It is still viewed in Thailand as a high-risk investment, which requires a strong understanding of the asset.
  • The Thai Securities and Exchange Commission (SEC) offers protection against potential scams by publishing a list of Digital Asset Brokers and Digital Asset Dealers approved by it.
  • In Thailand, the SEC has approved so far eight digital asset exchanges, five digital assets brokers, four initial coin offering portals and one digital asset dealer.
  • In January 2021, one of these local exchanges, Bitkub, recorded a trade volume of 2 billion Baht during on a Sunday, when traditional markets were closed, with the value of a Bitcoin reaching 1 million Baht.
  • During the winter break, Thai investors opened 20,000 accounts every day on the digital exchange Bitkub, against 7,000/day before the break, reaching 600,000 accounts.
  • On Sunday, January 3rd, the last day of the break, the daily rate of new account openings doubled to 40,000.
  • Thailand has become of the leaders in the crypto industry with around 10% of its internet users having made some investments in cryptocurrency.
  • This is also encouraged by the government to own cryptocurrencies in local coins.
ii) Insight 2: The Growth of Funds Relies on Digitalisation
  • According to a poll, the Thai Retirement Fund industry is lagging to make behind in terms of digital engagement with their clients, with only 38% of respondents admitting that they did so.
  • The poll also revealed that client engagement became much higher after a switch to mobile platforms.
  • This could mean that a switch to digital platforms would likely encourage Thai investors to invest in retirement funds.
  • Recently, younger investors have been showing an increased interest in mutual funds, with a strong preference for conducting transactions using digital channels.
  • The adoption of digitalization by funds is helping to make them a popular type of investment for Thai people.
  • An example of this popularity is the release of a mobile app by WealthMAgik.com, an online private wealth management service, which became one of the top 5 finance apps downloaded just after the day of its launch in Thailand.
  • The app helps investors choose the mutual fund that suits them best.
  • Financial Investment Industry leaders think that digital solutions are necessary to help grow its mutual fund industry asset base in the long term, which represents a major challenge.
  • One of the other benefits of using digital platforms is that it can help to attract clients by providing wider access to more investment baskets.
iii) Insight 3: Thai Stock Exchange Encouraging Digital Assets
  • Thailand’s Stock Exchange (SET) is preparing to launch a digital asset trading platform before the end of 2021, to enable investors to trade digital tokens.
  • In October 2020, the SET informed investors that it would launch the platform using the blockchain-based payment technology from Kasikorn Business-Technology Group.
  • The Thai digital economy is growing and estimated to reach 53 billion by 2025.
  • However, there have been issues recently with the main crypto exchange Bitkub, covering 97% of the Thai market, and that is offline at the moment, having crashed many times and been shut down by the SET because of this.
  • In addition, the SET has decided not to include cryptocurrency in its digital asset platform, due to fears of money laundering.

4) Insights on Thai Millennials Investing in Gold

i) Insight 1: Millennials Still Invest in Gold
  • Thai millennials or Gen Y are more financially literate than previous generations and tend to be more aware of the importance of personal financial management.
  • This generation tends to rely more on personal financial management to grow their wealth than their elders.
  • They also tend to spend more of their income with 19% of them spending more than three-quarters of their revenue compared to 15% of Gen X and 12% of Baby Boomers.
  • Thai millennials tend to invest in gold, bonds, and stock in the same proportion as previous generations, but they do it more for capital gains, and they tend to have a higher risk tolerance than Gen X or Baby Boomers.
  • A survey found that 5% of millennials interrogated invested in gold, the same percentage as Gen X and even more than Baby Boomers with 3%.
  • The main differences in their investments compared to previous generations were that they invested much more in bank deposits with 48% of their savings tied in banks, compared to 36% for Gen X and 33% for Baby Boomers.
  • The aim behind their investments is also different compared to Gen X and Baby Boomers as they are more focused on capital gains than savings for retirement or tax purposes.
ii) Insight 2: Use of New Technology to Sell Gold

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