Economics: Seeking Alpha says Baht Surge Attracts Investors to Thailand

  • By Pooky, Thai Intel’s economics journalist

If you follow Seeking Alpha, a string of highly positive articles on Thailand have been coming out for a while now, but many of those articles also warn investors to have an “Exit Strategy” ready.

Apart from an exit strategy, Thailand is a developing country with very weak governance. When coupled with the Thai political scene and the nature of the Thai stock market being dominated by short-term investors, investors should understand that “Stock Manipulation” is a highly develop art in Thailand.

So apart from an exit strategy, keep a close watch on the political calendar and do some basic scenario on how that event will play out on the stock market.

Fundamentally, economic wise, Thailand just went through a major flooding and the entire country’s food supply is being hit very hard, while the baht rise will take the edge off higher global oil prices-keep a note on the factors impacting inflation.

There is a risk here on the policy level since the Thai central bank can not raise interest rates as it will pressure the baht up more. The puzzle looks favorable to Thailand right now, but do not invest and leave the scene for too long. Also please note that some say a bubble is forming in the real estate and stock markets.

Real risk wise, here in Thailand, bombs could go off just by those that wants to make an impact on the stock market. Please do not laugh, event building for the stock market is rampant in Thailand. Just be aware of the high risk times-it is both an opportunity and a risk. The Thai stock market is shadowing regional leads, but divergence do occur at times and the opportunities can be great.

The Following is from Seeking Alpha:

Thirteen years after the baht’s collapse drove global investors out of Thailand, the currency’s recent strength is now attracting plenty of capital to the country. Local officials are disturbed. As it stands, the benchmark Thai overnight interest rate is already at a relatively low 1.75%, but the baht has still surged 11% against the dollar this year to become the top-performing Asian currency behind the yen.

Given the export- and tourism-oriented nature of the Thai economy, the strong baht is causing consternation in Bangkok. Most economists now think the Bank of Thailand will keep rates unchanged tomorrow in order to avoid encouraging more foreign flows. The country has already eliminated a 15% tax break for foreign bond investors and may explore additional measures designed to keep capital from flooding into its markets. With the “core” inflation rate trending at around 1% and gross inflation — counting food and energy costs — at around 3%, the Bank of Thailand has plenty of room to keep rates low for the duration.

In the meantime, the easiest way to get exposure to the Bangkok market is via the ETF THD, although if the strong baht is actually putting pressure on Thai companies like Siam Cement, its near-term upside may be limited. But as we have seen, Thailand’s ETFs have generated terrific gains this year.

The baht itself is a major component of CEW and a large factor in that fund’s recent outperformance:

Disclosure: No positions

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