Edgy exporters brace for damage

Edgy exporters brace for damage

Yuan depreciation shakes economy

China weakened the yuan on Monday, sparking fears of further escalation in the Sino-US trade war and leaving Thai firms worried that they would suffer further before an agreement is reached.

Thai exporters fear that China's action may escalate the US-China trade war into a currency war and lead all countries into monetary easing to maintain domestic economic growth in a repeat of 2009, said Ghanyapad Tantipipatpong, chairwoman of the Thai National Shippers' Council.

"The overall market environment has changed very fast, as indicated by the US's announcement last Thursday that it would impose a 10% tariff on US$300 billion worth of Chinese imports from Sept 1, followed by China letting the yuan weaken past 7 against the dollar," she said.

Beijing let the yuan fall below the 7-per-dollar mark for the first time in more than a decade, leading US President Donald Trump to accuse Beijing of "currency manipulation".

Late on Monday, the US Treasury Department labelled China a "currency manipulator", a decision that could pave the way for possible sanctions against Beijing. The last time the US put China on the currency blacklist was in 1994.

'War room' calls

"We're calling on the government to set up a war room immediately to handle the impact of the US-China trade row," Ms Ghanyapad said. "The Commerce Ministry needs to bring together academics, economic specialists and trade experts within the ministry to propose best practices on how to expand into new markets and boost exports."

She said the council has yet to evaluate the impact.

"In the preliminary evaluation, products we ship to China will definitely become more expensive, possibly by as much as 10%," she said. "We have to closely watch the performance of Thai exports in the third quarter, as all the current purchase orders are already completed."

According to Ms Ghanyapad, what shippers want most from regulatory bodies and the new government is for the baht to be curbed at 30 per US dollar. She said most Thai operators would be hit hard, with many facing possible liquidation, if the baht rises above 30 baht.

Ms Ghanyapad said that given the economic and export conditions, a rise in the daily minimum wage would be untimely.

"The council sees Thai exports having a high chance to contract this year," she said. "A contraction of 1% or more is possible if these risk factors are not addressed, especially for the baht."

For the first six months of the year, overall shipments were down 2.9% from the same period last year to $113 billion. The trade surplus for the period amounted to $3.94 billion.

Kalin Sarasin, chairman of the Thai Chamber of Commerce, said the weakest yuan in more than a decade would affect the world economy and could lead to a currency war.

Representatives from the Thai Chamber of Commerce will meet tomorrow with the Bank of Thailand's governor to discuss the economy and export prospects.

"The central bank needs to deal first with the local currency problem," Mr Kalin said. "Monetary measures need to be more relaxed." He said the government should also promote the use of local currencies in trading with neighbouring countries to reduce foreign exchange risk.

Torn further

The US labelling China as a currency manipulator could intensify their rift and the situation warrants monitoring, said Pisit Puapan, director of the Macroeconomic Policy Bureau in the Fiscal Policy Office (FPO).

The currency manipulator label does not come with any penalties, he said.

The FPO will cut its forecast for the country's 2019 economic growth later this month. In April, the Finance Ministry's think tank lowered its forecast for 2019 growth to 3.8% from 4%, assuming export value in US dollars grows 3.4%.

China is expected to allow the renminbi to be weakened at a limited pace, on the grounds that the People's Bank of China will decline to make dramatic moves in managing the currency because the country needs to build up global investor confidence to drive economic growth, said Kobsidthi Silpachai, head of markets and research at Kasikornbank.

The baht is expected to move in a band of 30.60-30.80 against the US dollar this week, despite the global financial market chaos after the yuan depreciated past the key 7-per-dollar level, Mr Kobsidthi said.

On Tuesday the baht, perceived as a safe haven, firmed to 30.75 from 30.83 on Monday. The baht remains Asia's best-performing currency, gaining 5.7% against the greenback this year.

Yunyong Thaicharoen, chief economist of Siam Commercial Bank's Economic Intelligence Center (EIC), said the yuan is tipped for a marginal downside in light of China's economic slowdown as a result of the US-Sino trade spat.

China is unlikely to let the currency weaken significantly because investor and business confidence would suffer, he said.

The renminbi's move would not reverse the baht's rise, he said, noting that the baht's safe-haven position would continue to draw offshore fund inflows.

Mr Yunyong said the Bank of Thailand has stepped into the foreign exchange market, as seen by a $10-billion increase in international reserves since the beginning of this year.

Concerns that the US will include Thailand in its watchlist of currency manipulators would limit the central bank's intervention, he said.

Chinese may flee

Phaibul Kanokvatanawan, group chief executive of The Mall Group, said China's retaliatory measures hurt the number of Chinese tourist arrivals to Thailand.

"Chinese tourist numbers have yet to bounce back since the fatal Phuket boat accident last year," he said. "At downtown shopping complexes, the number of Chinese tourists has also fallen. Chinese tourist spending has also declined after the Chinese government introduced a new import tax rule on cross-border purchases. The government thus needs to rein in the baht or roll out new measures to attract more tourists to the country."

Vichit Prakobgosol, president of the Association of Thai Travel Agents (Atta), said China's weakened yuan may worry many sectors. But in terms of tourism the issue has yet to impact Thais.

Mr Vichit said tour operators have to monitor whether the currency will continue to drop in the long run and whether the US will strike back.

If the yuan weakens in the long term, the effect on tourism will be global because mainland tourists make up a significant segment, especially in the lower- to middle-income bracket.

The best way to relieve tourism tension is to cap the baht at 31 to the dollar, lest Chinese tourists choose cheaper destinations instead, Mr Vichit said.

Property stands strong

Simon Lee, co-founder and president of Angel Real Estate Consultancy, said the yuan's sharp decline would have no impact on Chinese buying Thai properties.

"At this time, the Chinese who want to buy Thai property will buy it anyway, no matter how strong the baht is," he said. "Those who don't want to will not. We've already passed market bottom in the first quarter."

He said the yuan's depreciation is China's strategic strike on the US. The yuan has been weak against the baht since late last year, driving many Chinese buyers away from the Thai condominium market.

To recover Thai property sales among Chinese buyers, the government should allow short-stay rentals in specific or designated zones 90 or 180 days per year, Mr Lee said.

"Thai visa fee waivers can also help resume the property investment market among Chinese investors, as the promotion will boost Chinese tourist arrivals, who will likely rent out condo units," he said.

Intense monitoring

On Tuesday the cabinet instructed all economic ministries and related agencies to work together and closely monitor economic risks that are mostly caused by the currency fluctuation and trade war.

Deputy Prime Minister Somkid Jatusripitak said he was worried about the economy in the third and the fourth quarters because of the drastic impact on the real sector from the trade war, which is rapidly shaping up as a currency war.

Despite high volatility in the global capital markets, Thailand's sound economic fundamentals still attract offshore inflows in the capital market, with the baht's value continuing to remain firm.

Although non-resident net flows in the domestic bond market were registered as net outflows worth 17.9 billion baht on a year-to-date basis as of Tuesday, month-to-date offshore fund flows amounted to net inflow worth 4.7 billion, according to the Thai Bond Market Association (TBMA).

In the domestic stock market, foreign investors sold Thai equities worth 11.4 billion baht on a month-to-date basis, but they were identified as net buyers of shares worth 49.3 billion on a year-to-date basis, according to Stock Exchange of Thailand data.

"Investors still believe that the Thai capital market is a safe haven for now because our economic fundamentals remain strong, while international credit rating firms have adjusted Thailand's sovereign credit rating outlook to positive as the new government is poised to launch an economic stimulus package soon," said TBMA senior executive vice-president Ariya Tiranaprakit.

"Low interest rates and financial liquidity flooding the world leave stock markets poised to generate high returns this year," said BBL Asset Management chief executive Peerapong Jirasevijinda.

Thai exports such as electronics could be adversely affected if the Sino-US trade dispute escalates, Mr Peerapong said.

"Tourism from China will decline if the yuan depreciates further," he said. "The government should target a new group of tourists to replace the Chinese, as well as come up with other measures to boost domestic consumption."

Export sectors expected to sustain an impact from the intensifying trade row include rubber, petrochemicals, coal, electronics and poultry products, according to Krungsri Securities research.

Other businesses poised to be affected by the Sino-US trade war include the retail, hospitality, aviation and medical sectors, as dwindling Chinese arrivals are tantamount to lower profits, according to Asia Plus Securities.

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