Thailand’s baht rose to within 0.2% of its level prior to Thursday’s coup and bonds gained on optimism a military takeover will bring stability after six months of political unrest.
The currency gained as much as 0.43% to 32.46 per dollar, after trading at 32.40 immediately prior to the army takeover. It was 0.3% stronger as of 10.06am. The advance in government debt sent 10-year yields down two basis points to 3.775%.
“We view the current military coup as likely overall positive as it creates a more stable environment,” Mark Mobius, who oversees about US$50 billion as Templeton Emerging Markets Group’s executive chairman, said by e-mail. “The prognosis for Thailand is good given that direct foreign investors want stability in the country.”
Overseas investors pulled $408 million from Thai stocks in the three trading days since martial law was declared early on Tuesday, helping send the SET Index down 0.7 % this month through Thursday. While the nation has the biggest cumulative trade surplus for more than three years, an official report this week showed gross domestic product shrank 0.6% in the first quarter from the prior three months as political unrest hurt production and tourism.
“The baht has held up pretty well despite all the political challenges,” said Sanjay Mathur, head of research and strategy for Asia excluding Japan at Royal Bank of Scotland Group Plc in Singapore. “The fact that its broader fundamentals are in shape has obviously helped the baht, but I think the biggest issue for Thailand right now is they need to revive growth.”
The baht has dropped 0.4% versus the dollar in May, making it the worst-performing currency in Asia. After the last coup was announced on Sept 19, 2006, the currency weakened 1.4% the next day before rebounding 1% in the following trading session. The baht ended that year 4.3% stronger than it was prior to the transfer of power.
While Credit Agricole CIB, Commonwealth Bank of Australia and Mizuho Bank Ltd forecast short-term weakness for the baht, the coup may provide more certainty in a market that has endured 12 military takeovers since 1932, Mark Williams, chief Asia economist at Capital Economics in London, said on Thursday by phone.
“It could be positive for financial markets in the near term by reducing uncertainty and reducing the risk of the political standoff turning violent,” Mr Williams said. “But it underlines the scale of the divide in Thailand and suggests that a lasting resolution to the political conflict is a long way off.”
The baht may weaken 1.5% to 33 per dollar “in the next couple of sessions,” according to Frances Cheung, head of Asian rates strategy at Credit Agricole in Hong Kong. Mizuho Bank’s senior economist Vishnu Varathan said the baht may drop to 33.5 per dollar.
Credit-default swaps insuring government debt against default rose two basis points to 132 as of 9.35am in Hong Kong (8.35am Thailand time), according to Standard Chartered prices.
''The key factor for the sovereign credit profile in the short term is whether Thailand can move towards installing an effective, fully functioning government without sparking a further escalation in political instability,” Andrew Colquhoun, head of Asia-Pacific sovereigns at Fitch Ratings in Hong Kong, wrote in an e-mailed statement. “Such an escalation would risk more severe and lasting damage to the economy.’’