Thailand investors limit returns potential by holding 50% of financial assets in cash

Press Release | June 29, 2015

Investors across Asia are losing ground each year as savings grow more slowly than costs due to inefficient asset allocation – excessive cash holdings mean that Thai investors likely face the same challenge.

Bangkok – For every step forward the average investor in Asia takes towards meeting their main financial goals, many fall half a step back owing to the rising costs of those goals, according to a new report by Manulife Asset Management. 

The report, entitled One step forward, half a step back: Meeting financial goals in Asia, is the sixth in Manulife Asset Management’s Aging Asia series. The report reveals that the average investor in Asia faces a potential investment returns shortfall of 3.3% (ex-Japan)  a year. That looks small as a percentage, but it represents a very large sum when compounded over 10 or 20 years. 

The shortfall arises because the cost of the five most cited financial goals identified by respondents to a proprietary Manulife survey  – retirement, paying for children’s higher education, meeting current living expenses, purchasing a primary residence and saving for a rainy day (which includes unexpected healthcare costs) – have risen an average of 6.0% a year over the past five years (ex-Japan) while self-reported investment portfolios uncovered in the same survey delivered average returns of just 2.7% a year in the same period (ex-Japan). 

Tor Indhavivadhana, CEO of Manulife Asset Management (Thailand), said, “The report’s findings are highly relevant to Thai investors, who are seeing rapid growth in the cost of many of their key financial obligations. For example, out-of-pocket healthcare spending in Thailand rose 7.2% a year over the past five years and the cost of housing climbed 7.3% a year in the same period .

“Against this backdrop, it is not hard to see why Thai investors could see their investment returns fall short of the growth rate of their key financial obligations. Indeed, we find that roughly 51% of household financial assets in Thailand are allocated to cash deposits which have returned an average of just 2.0% a year over the past five years . Moving a portion of these cash holdings to higher-yielding asset classes such as equities could help investors match or exceed the growth rate of their key financial obligations. For example, Thai equities delivered average annual returns of 14.0% a year over the past five years  despite several periods of heightened volatility.”

Michael Dommermuth, Executive Vice President, Head of Wealth & Asset Management, Manulife Asset Management added, “Thai investors are hardly alone in their outsized allocation to cash deposits. Survey respondents across the report’s subject markets reported that 37% of their assets are allocated to local currency which delivered average returns of just 2.0% over the past five years (ex-Japan). While investors in some developing markets in the region suffer limitations on the number of investment markets and types of asset classes they can access, Thai investors – like those in more-developed markets in the region – have the option to shift a portion of their cash holdings to offshore equity and fixed income investments to potentially enhance their returns, moderate risk and help meet their financial objectives.”

Manulife Asset Management’s Aging Asia series of reports and related resources can be accessed at: www.manulifeam.com/agingasia.

 

Unless otherwise noted, data in this press release is sourced from Manulife Asset Management based on investment returns and cost growth data outlined in One step forward, half a step back: Meeting financial goals in Asia which can be accessed at: www.manulifeam.com/agingasia.



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