How to Short Sell the Thai Stock Market

Investors are often perplexed when it comes to the strategy of short selling. But it is not complex or difficult. Short selling is simply taking action to capitalize on falling market prices.

A couple of months ago I wrote a long and detailed articled called How to Short Sell Thai Shares. I reviewed two different strategies that you can use to short sell specific Thai securities listed on the Stock Exchange of Thailand (SET).

In this article, I want to further expand on the short selling theme. I will do so by explaining that, in addition to shorting individual Thai securities, it is also possible to short sell the broader Thai market as well as specific industry sectors therein.

If you are bearish on the outlook for the Thai market, there are a number of different methods that you can use to short it:

Short Selling with an ETF

This first method is noteworthy because it is available to investors who do not have access to a Thai brokerage account.

If you did not already know, an Exchange Traded Fund (ETF) is a fund that is easily traded like a security. ETFs can hold assets such as shares, commodities, or bonds and are mostly designed to track a specific index.

iShares are a collection of ETFs managed by BlackRock. They are listed on a number of stock exchanges including New York, London, Toronto, Australia, Hong Kong and Singapore.

The iShares MSCI Thailand Capped ETF seeks to track the investment results of a broad-based index composed of Thai equities. In the FAQs section of the iShares website BlackRock advises that if you can short sell securities through your current stockbroker, you will also be able to short sell their iShares ETFs.

Short Selling the SET50 Index

The SET50 Index is comprised of the top 50 companies listed on the Thai stock market in terms of their market capitalization, liquidity and regulatory compliance. You can view the live price data for each of the shares that comprise the SET50 on our Tickers page.

The Thailand Futures Exchange (TFEX) offers two different products that can be used to short the SET50.

The first of these is SET50 Futures.

The second is SET50 Put Options.

The most notable difference between these two products relates to financial liability. Put options give the buyer the right, but not the obligation, to sell the SET50 Index at a specific price on or before a certain date. The maximum loss that can therefore be suffered by an investor is limited to the initial amount paid for the options contract.

In contrast, the losses on a short position created with a futures contract can be unlimited. If the SET50 Index continues to rise, you will continue to receive margin calls from your broker requesting that you deposit addition funds to top up your trading account.

Short Selling Specific Industry Sectors

The TFEX also offers futures on five specific Thai industry sectors: Banking, ICT, Energy and Utilities, Commerce, and Food and Beverage.

Sector Index Futures may prove useful to an investor who wants to implement trading strategies based on economic cycles or seasonality. For example, tourism makes a significant contribution to the GDP of Thailand. An investor may wish create a short position in food and beverage futures leading into the low season for travel and tourism.

Your comments or feedback on this article are welcomed. If you want to discuss and learn more about short selling on the SET or TFEX please visit our forums. If you have a specific question you can post it as a new topic.

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