Forecasts that the baht could weaken to 37 per US dollar by the end of the year will prove wrong if Thailand's political problems ease and a temporary government is formed to improve fiscal policy, according to CLSA Securities (Thailand).
Managing director Prinn Panitchpakdi said that given the country’s sound economic fundamentals and high international reserves, a change in fiscal policy, particularly the scrapping of infrastructure projects worth Bt2 trillion, the baht might not fall much if the political problem is solved within two or three weeks.
Pipat Luengnaruemitchai, Phatra Securities assistant managing director, believes "there may be not much impact on the baht to weaken further with the exception of the possibility of more political trouble, which could affect investor confidence".
Morgan Stanley recently reiterated its forecast that the baht would weaken to 37 per the dollar by the end of the year if the political crisis pushes the economy into recession.
Merrill Lynch, Phatra Securities’ ally, forecast the baht to depreciate to 33-33.5 per dollar after the United States’ quantitative easing programme aided its economic recovery.
The baht is the only one of 12 Asian currencies tracked by Bloomberg to weaken against the dollar this month, slipping 0.4 per cent. It has retreated 4.3 per cent since the anti-government protests started at the end of October, the worst performance in the region, according to Bloomberg.
"Our target of 37 is very achievable," Bloomberg quoted Geoffrey Kendrick, Morgan Stanley’s head of Asia currency and interest-rate strategy in Hong Kong, as saying. "The economy is in a massive hole. Thailand is certainly going to have a technical recession in the first half."
Pipat said Thailand’s tourism industry needed to be monitored. Last year, tourism generated Bt1.3 trillion in income for the country, or more than 10 per cent of gross domestic product.
If tourism declines further, the country’s current account could experience a lower surplus or even a deficit, and that could have an impact on the baht, he said.
Prinn said foreign investors were concerned that Thailand has not formed a new government to administer fiscal policy and deliver a budget for the next fiscal year’s investments, and that was a key for growth.
The economy suffered a contraction of more than 2 per cent in the first quarter and may enter a technical recession in the second quarter, he said.
Foreign investors are also concerned about Thailand’s competitiveness and productivity in the long term, and foreign direct investment after the unrest, he said, adding that investors from Japan, China and the United States may seek other markets.
Prinn said the economic slowdown prompted the Thai bourse to fall early this year.
Investors weighted Thai stocks medium to lower than the average compared with Morgan Stanley Capital Investment, he said, adding that foreigners may not be in a hurry as they want to see stock prices go down further.
In response to a question about the possibility for the Stock Exchange of Thailand to rebound in the fourth quarter, Prinn said it was expected to come back up if there were temporary government policies.
"Long-term state investment is not only [concerned with] structural reform, but also other reforms to benefit the country by making it more competitive, having higher productivity in the long term and more educational development and [better] governance," he said.
"The new [temporary] government should implement reforms before the full election. Foreign investors want to see these."