Baht strength reflects bet on stability
Currency traders are giving Thailand's government the biggest vote of confidence since 2006, when Prime Minister Yingluck Shinawatra’s brother was ousted in a military coup.
- Published: 23/03/2013 at 04:22 PM
- Newspaper section: topstories
Call options granting the right to buy the baht in a month's time cost 0.16 percentage point more than put contracts on March 20, the biggest premium since July 2006, two months before Thaksin Shinawatra was toppled, according to data compiled by Bloomberg.
That compares with an average discount of 0.72 percentage point in the past five years.
The so-called risk-reversal rates show it is cheaper to bet on declines than gains in the Indonesian rupiah, Malaysian ringgit, Singapore dollar and Philippine peso.
Fitch Ratings raised its assessment on Thailand this month, citing a resilient economy and a more stable political environment. Yingluck has helped ease tensions since taking power in 2011 by shelving measures that would allow her brother's return.
The baht has rallied 4.6% versus the US dollar this year, the most in the region, and this past week reached its strongest level since the currency was floated in July 1997, sparking the Asian financial crisis.
"Thailand’s politics, which were always a cause for concern, have been so stable, domestic demand looks to be very strong and the growth rate is outstanding," said Minoru Shioiri, chief manager of the credit and foreign-exchange trading division at Mitsubishi UFJ Morgan Stanley Securities Co.
"We see many factors that make investors so bullish on Thailand."
Overseas investors have pumped a net $8.9 billion into Thai sovereign debt in 2013, data compiled by Bloomberg show, more than seven times the net inflows into Indonesian notes.
That's helped push the Thai 10-year government bond yield down 14 basis points since the end of January to 3.56% as of Thursday.
Yields on similar-maturity securities from Malaysia fell five basis points to 3.49% over the same period, while the Indonesian rate climbed 15 basis points to 5.48%. Thailand is rated the third-lowest investment-grade by Standard & Poor's, one level below Malaysia and three rungs above Indonesia.
The country doesn't face the uncertainty tied to impending elections in Malaysia, or a large current-account deficit like Indonesia, Bank of Thailand Governor Prasarn Trairatvorakul said on Wednesday.
Yingluck's government is the most stable since the 2006 coup that deposed her brother, making Thailand a standout in the region, said Suwat Bumrungchartudom, an analyst at Bualuang Securities.
"We see no competitors in parliament and the ruling party has expanded its control in many parts of the country," he said in an interview.
Southeast Asian currencies have trailed the baht this year, with the peso strengthening 0.6%, the rupiah weakening 1.1%, the ringgit declining 1.8% and the Singapore dollar losing 2.3%, according to data compiled by Bloomberg.
Overseas investors pulled $220 million from Thai stocks in first four days of last week, paring inflows this year to $83 million, exchange data show. The SET index has retreated 6.4% since closing at the highest level since 1994 on March 15.
The baht, which was trading late Friday in Bangkok at 29.28/31 to the dollar, will end the year at 29.3, according to the median estimate of 26 economists surveyed by Bloomberg.
There is no need for short-term measures to curb the baht's appreciation as Thailand's economy would adjust before it strengthens to 27, Finance Minister Kittiratt Na-Ranong said on Thursday.
Policymakers should act before the rising currency does too much damage to exports, he said.
The current-account surplus will probably shrink this year, offsetting appreciation pressure on the baht, said Nalin Chutchotitham, an analyst at Kasikornbank.
The country posted a $2.2-billion deficit in the broadest measure of trade in January, the most since Bloomberg began compiling the data in 1991, as imports surged 38% and exports climbed 16%, according to central bank data.
"We still think that the baht has some more room to rise, but not at the same pace that it has been so far this year," Nalin said. "Foreign inflows probably won't continue at the same pace as investors have to take profits."
Kasikornbank last week revised its end-2013 baht forecast upward to 28.50 from 29.
"When you compare Thailand with neighbouring countries like Malaysia and Singapore, you can be more bullish on Thailand due to its stronger economic performance and better currency outlook," said Tatsuya Higuchi, a senior portfolio manager at Kokusai Asset Management, which has $36 billion under management. "We have added our holdings of Thai bonds since late last year."
The baht accounted for almost 12% of Kokusai Asset Management's Asia Pacific Sovereign Open fund at the end of last month, up from 2% a year ago, according to the company’s website. The fund has made a return of 13% this year, beating 95% of its peers, according to data compiled by Bloomberg.
Union Investment Privatfonds is adding to holdings of Thai sovereign bonds, attracted by the country's fundamentals and the currency, according to fund manager Christian Wildmann.
"A brighter looking global economy and the weakening Japanese yen are two reasons why we regard the baht as an attractive candidate for appreciation in 2013 due to Thailand’s role in the global supply chain," Frankfurt-based Wildmann said in an interview on March 8.
If loose Japanese monetary policy that has contributed to the yen’s 18% plunge against the dollar since the end of September succeeds in reviving exports from Japan, that will help the baht, according to Nomura Holdings.
Japanese companies accounted for 64% of projects approved by the Thai Board of Investment in 2012.
"Japan’s reflation policy could actually be positive to Thailand because it doesn't compete with Japan," said Craig Chan, Singapore-based head of Asia ex-Japan currency strategy at Nomura.
"It’s basically a supply-chain centre for Japanese exporters and if the policy works, it will benefit Thailand via growth."
About the author
- Writer: Yumi Teso and David Yong, Bloomberg News