A large foreign reserve buffer, sound economic fundamentals, low exposure to foreign debt and limited foreign holdings of local bonds and equities will help Thailand avoid following in the footsteps of the ringgit rout and massive capital flight from Malaysia, say economists and market experts.
"The Thai capital market has not felt any effects from the ringgit's retreat," said Ariya Tiranaprakit, executive vice-president of the Thai Bond Market Association.
The prospect of a faster-paced US interest rate hike in 2017 is fuelling the stronger dollar, which will continue to spur capital outflows from emerging markets like Thailand, Mrs Ariya said.
Such offshore fund outflows from the Thai bond and equity markets are expected to be limited, as the fragile state of major economies such as China, Japan and the EU will prevent the US central bank from lifting its policy rate too fast, she said.
The firmer greenback has taken a toll on several Asian currencies, and Malaysia's ringgit, which recently hit its lowest level against the dollar since the Asian financial crisis, was already among Asia's worst-performing currencies over the past two years.
Given concerns that US President-elect Donald Trump has vowed large-scale infrastructure spending and tax cuts, which will force the Federal Reserve to tighten monetary policy, the ringgit has fallen about 6% since his victory.
Malaysia has been dominating headlines in recent months. The Malaysian central bank's attempts to curb offshore trade of the ringgit to stem the fall of the currency adds credence to the possibility of capital controls, similar to measures it imposed during the Asian financial crisis during 1997-98.
Adding to jitters is a plunge in oil prices, which deteriorates Malaysia's financial metrics, and political upheaval stemming from a corruption scandal linked to Prime Minister Najib Razak.
Mrs Ariya said foreign investor holdings in Malaysian bonds is relatively high, 30% compared to 16% of outstanding Thai bonds, making the magnitude of their sell-off in Malaysian bonds greater than that of Thai bonds.
As of Dec 26, foreigner investor holdings in Thai bonds were valued at 633 billion baht.
Foreign investors pulled 2.48 billion baht and 110 billion out of Thai bonds in 2014 and 2015, respectively. They bought 60.7 billion baht more than they sold in local bonds in 2016.
Her comment echoed the views of Bank of Thailand governor Veerathai Santiprabhob that a potential spike in the US interest rate may prompt an exit of foreign investors from the Thai capital market in 2017, but the capital outflows will be mild as the value of their holdings is marginal and Thailand has accumulated a sizeable reserve buffer.
The central bank's chief also said in a recent exclusive interview with Post Publishing that the size of Thailand's current account surplus is far larger than flows from portfolio investment, indicating that increases in the nation's net foreign assets (from the current account surplus) is large enough to cushion capital outflows.
A current account surplus means there are more funds flowing into the country than out of the country and indicates that a nation is a net lender to the rest of the world.
Typically, countries with strong current account surpluses are better able to counter any negative effects of the US interest rate hike on their currencies.
For the first 10 months of 2016, Thailand recorded a current account surplus of US$39 billion, while it had a capital and financial account deficit of $11.4 billion, according to the Bank of Thailand.
Foreign direct investment and portfolio investment are large components in capital and financial accounts. In comparison, Malaysia's current account was in a surplus of only $3 billion for the nine months to September.
Pakorn Peetawatchai, chief strategist officer at the Stock Exchange of Thailand, said he does not think capital outflows will reach a level that spooks the market as net foreign holding in Thai equities amounts to around 4 trillion baht, accounting for 31% of total market value, and the holdings of local institutions are now large enough to balance fund outflows.
"I'm concerned about capital outflows, but not as worried as in the past and less than certain neighbouring countries. For example, Malaysia is beleaguered by several internal factors," he said.
Mr Pakorn said the ringgit's slide will not drag down the baht due to different economic fundamentals.
Kobsidthi Silpachai, head of capital markets research at Kasikornbank, said capital flight in the Thai capital markets, particularly in the bond market, will continue on the back of prospective US policy rate hikes.
The capital outflows are not worrisome as foreigner-held bonds are not very significant, he said.
The US rate increases and foreign capital outflows, however, will directly weaken the baht against the US dollar.
KBank forecasts the local currency will fall to 36.5 baht versus the greenback towards the end of 2017, from 36 baht projected for the end of 2016.
Mr Kobsidthi said the baht will move in line with its regional peers but will not sink sharply, like the ringgit, due to different economic fundamentals between Thailand and its neighbouring countries.
"Thailand's strong international reserves and current account surplus are major buffers to keeping the baht stable amid the changing global economic circumstance," he said, adding that despite the US policy rate increase, the Bank of Thailand is expected to maintain its policy rate unchanged at 1.5% throughout the end of 2017.
Thailand's foreign reserves were $172.6 billion as of Dec 16.
"Going through 2017 we expect the ringgit to be more stable, and I reckon now that the market has taken into account some of the expected Fed fund rate hikes that will happen next year," said Muhammad bin Ibrahim, governor of Bank Negara Malaysia, during his visit to Bangkok last week.
It is possible the ringgit's value will slip further but the effect will only be short-term since the fundamental factors of the country remain strong, said Amonthep Chawla, head of research at CIMB Thai Bank.
"People are worried about the country's political stability and the fact that capital controls might soon be imposed, so they are bringing their money out of the country and are paying back loans amid fears that the ringgit might become even weaker," he said.
"As the Fed is poised to increase the rate several times next year, I think every emerging currency will be affected, not only the Malaysian ringgit, but the magnitude will not be as severe since the market has already priced in [the rate increase]," said Mr Amornthep, adding that Malaysia's relatively high interest rate will also help retain capital within the country.
Naris Sathapholdeja, senior vice-president of TMB Analytics, an economic analysis unit of TMB Bank, said that as oil prices have declined over the past few years, Malaysia, as a net oil exporter, has been experiencing a continued decline in its current account surplus, shrinking its reserves and in turn lowering the country's monetary stability and causing capital outflows.
The international reserves of Bank Negara Malaysia amounted to $96.4 billion as of Dec 15, down from $97.8 billion at the end of October, before the US presidential election.
According to the Malaysian central bank, the current reserves position is sufficient to finance 8.3 months of retained imports and 1.2 times of its short-term external debt.
"The weakening of Malaysia's current account surplus and lower international reserves have made the situation susceptible to speculation," Mr Naris said.
"I would say the level is acceptable but not as high as Thailand's reserve level, which is sufficient to finance around nine to 10 months of retained imports," he added.
Mr Naris said the direct impact of the weakening ringgit on Thailand will only be seen in the prices of common products exported from Thailand and Malaysia, such as rubber.
"I don't see that it [ringgit's weakness] will cause any capital outflows," he said.