Published on January 13, 2006

Offshore investors spend Bt50 billion, push baht higher

Massive net foreign buying of local stocks has topped Bt50 billion this year, boosting the baht to close near an eight-month high yesterday, but the central bank said it did not intervene in the currency market.

Bank of Thailand Governor Pridiyathorn Devakula signalled the market that the baht had appreciated too rapidly, and the central bank would try to keep it moving in line with market mechanisms.

The baht was up 1.08 per cent to Bt39.45 against the greenback shortly after trading started yesterday. It has risen 4.15 per cent from the end of last year. It was also 0.56 per cent and 0.33 per cent stronger against the Japanese yen and the euro, respectively.

At 1pm yesterday, the dollar was at Bt39.475 to the US dollar, recovering after the governor’s statement. It was trading just above an eight-month high of Bt39.40 before the statement. The baht closed at Bt39.35 in Asian trading.

Pridiyathorn insisted that the stronger baht was not being caused by speculation in the foreign-exchange market, but rather by capital flowing into equities, as foreign investors shifted their focus to Asian markets, including Thailand.

About Bt50 billion has poured into the stock market over the past seven days, compared with Bt110 billion to Bt120 billion of foreign net buying for all of last year.

Pridiyathorn said the Stock Exchange of Thailand was attractive now because of low price to earnings (P/E) ratios and positive economic fundamentals.

“It’s good that they want to invest in Thai stocks. I’m not concerned about this, because it’s happened before,” he said, adding that exporters had also helped lift the baht by selling their dollar earnings.

The governor admitted that the stronger baht would make business slightly more difficult for exporters, but he believes the exchange rate will settle at an equilibrium level soon.

But the central bank would not allow the baht to get too much dearer.

Usara Wilaipich, senior economist at Standard Chartered Bank, said the rate was likely to hit Bt39 per dollar this quarter, due to capital flows into the stock market and anticipation of another round of yuan appreciation in China.

She said exports to Japan would be crimped if the baht gained more than the yen against the dollar.

Last year, the yen lost 13 per cent, compared with a drop of 5.5 per cent for the baht. However, both currencies have since rebounded 3 per cent against the greenback.

“The global economic slowdown will have a more significant impact on our exports than will the baht appreciation. Exports will grow more slowly than last year, because of lower demand,” she said.

A recent JP Morgan report said foreign net buying this month amounted to more than Bt53 billion as of Wednesday, or about 45 per cent of last year’s cumulative flow.

The key driver is rotation into Thailand on the basis of the past two years of relative underperformance, coupled with attractive valuations of 10 times the p/e ratios and yields. Peaking interest-rate expectations had also helped support inflows, the report said.

However, without local-investor participation by, rally may not be sustained, it said.

“We believe much of the foreign-fund flow has been from non-dedicated funds, which are likely to be restricted primarily to the larger cap universe. Local investors still appear unconvinced of the rally’s longevity, and it’s difficult to see a rerating occur without retail participation.”

Anoma Srisukkasem

The Nation

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