Offshore funds irk BoT

Offshore funds irk BoT

Baht creeping higher versus regional peers

The central bank is concerned and annoyed that the baht is rising quickly again as offshore funds pour cash into Thailand at a higher rate than any of the neighbours. (File photo)
The central bank is concerned and annoyed that the baht is rising quickly again as offshore funds pour cash into Thailand at a higher rate than any of the neighbours. (File photo)

Bank of Thailand governor Veerathai Santiprabhob has voiced concerns about offshore funds that are flowing into Thailand at a faster pace relative to regional peers, pouring mostly into short-dated bonds and driving the baht higher.

Foreign investors' jitters about the trade tussles between giant economies have eased and overseas funds are returning to Thailand, Mr Veerathai said, adding that the inflows have strengthened the baht in recent days.

"We need to monitor the situation closely," he said. "The capital flows, most of which are being put into short-term bonds, are meant to park money in the Thai market, and this is strengthening the baht at a greater magnitude than other regional currencies. We are uncomfortable with this behaviour."

As of close of business on Wednesday, the baht had risen nearly 2% since Aug 15 to 32.72 against the US dollar.

Foreign investors have considered the baht a safe haven in emerging markets, given high foreign reserves, a current account surplus, low foreign-denominated debt and solid financial institutions, and these conditions have attracted foreign investors.

The Bank of Thailand has so far refrained from tightening monetary policy despite other Asean nations falling in line with the US Federal Reserve's normalisation.

The central bank's rate-setters have stood pat at 1.5%, where the policy rate has remained since April 2015. But the bank has signalled that the need for accommodative monetary policy is subsiding amid broader-based economic growth.

In April, the central bank launched a measure to shave 80 billion baht from new short-dated bonds as a means to curb baht speculation after it detected that the majority of fund inflows were going to short-term bonds.

But the measure was called off in the wake of offshore fund repatriation earlier this year in the aftermath of concerns over the Fed's more hawkish stance, the US-China tariff war and disappointing first-quarter earnings for listed Thai firms.

Stock Exchange of Thailand (SET) president Pakorn Peetathawatchai said net foreign sales of Thai equities are expected to decline in the second half and the bourse has seen continuous foreign net buys of equities this month.

In the first half, foreign investors reported net sales of 180 billion baht and brokerage firms sold 11.1 billion worth of shares. On the other hand, retail investors were net buyers of 116 billion baht and institutional investors bought a net 74.7 billion baht.

"The Thai capital market has strengths in both quantitative and qualitative aspects, as the SET's market capitalisation has grown at an annual rate of 15% since 2009 and is approximately US$530 billion [17.3 trillion baht]," Mr Pakorn said.

The SET has been the most financially liquid bourse in Asean since 2012, with average trading value of more than $2 billion per day.

Mr Pakorn said the four industries designated as engines of growth for Thailand are tourism and medical services, energy and petrochemicals, value-added agriculture and the food sector, as well as digital services.

The SET's annual inbound roadshow has been timed well, he said, as the country's GDP grew by 4.8% in the first six months amid double-digit expansion in exports and 19 million foreign tourists registered.

Foreign funds can receive insightful information, Mr Pakorn said, and foreign capital can return to Thailand after the roadshow ends.

Separately, Deputy Prime Minister Somkid Jatusripitak said the much-touted Thailand Future Fund (TFF) is expected to launch an IPO in October and begin trading on the Stock Exchange of Thailand at the beginning of November.

Annual expected investment return is projected at 3-4%, he said.

"I have received a report that there are no impediments [for the fund] and it is expected to be unveiled soon," Mr Somkid said.

Prapas Kong-Ied, director-general of the State Enterprise Policy Office, said the fund submitted a filing to the Securities and Exchange Commission on Tuesday, estimating an asset size of 45 billion baht.

The underlying assets are the Chalong Rat Expressway and Burapha Withi Expressway, both owned by the Expressway Authority of Thailand, with 45% of future revenue to be used to back TFF units, Mr Prapas said.

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