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Outflows could weaken baht to 34 per greenback next quarter: KBank

THE BAHT COULD depreciate to 34 against the US dollar next quarter because funds are moving out of emerging markets to developed economies, according to Kasikornbank.

"The baht's movement in 2014 is hard to predict, but when fund flows are changing from emerging markets to developed markets, one thing that will happen is that the cost of US dollar funds will increase," Thiti Tantikulanan, head of capital markets business at KBank, said yesterday.

Excluding the Indonesian rupiah and the Indian rupee, the baht and yen depreciated the most at 2.8 per cent a month ago, followed by the ringgit at 2.3 per cent and the Singapore dollar at 1.3 per cent.

The baht was driven to 33 by the uncertainty in the home market, especially the political unrest.

That was faster than the market expected. KBank had expected the baht to hit 33 by the end of next year.

The baht was at 34 in September 2009. Bank of Thailand Deputy Governor Pongpen Ruengvirayudh said the baht-dollar exchange rate next month was expected to be volatile because of the political instability. Foreign-capital inflows are tapering off as investors wait on the sidelines to see what develops politically. The baht is still weakening from the continuing outflows, but less capital is leaving, partly because of the New Year season.

The baht's movement next year will dependent mainly on the domestic situation, Pongpen said.

The unclear political picture must be closely tracked because this will greatly influence where the baht is heading next month, she added.

However, Thiti of KBank said liquidity in the local market was not a problem despite the capital outflows, as foreign holdings in Thai bonds have stayed steady at Bt700 billion, even thought the 10-year yield here was not as attractive as the corresponding US yield. Foreign holdings in Thai bonds surged to Bt700 billion this year from Bt70 billion in early 2011.

"Thailand in one of the investment-index markets for foreign investors. They might prefer their investment meeting the benchmark rather than getting an absolute return, while Thai bond holdings by foreigners are low at only 11-12 per cent," he said.

The market should closely track the economic figures of the United States and that country's tapering of its quantitative easing programme in the next two months. If US economic figures improve, its Federal Reserve might taper its bond buying more than it said it would, and the tapering might happen quicker than expected.

The US central bank early this month said it would reduce its US$85-billion-a-month bond purchases by $10 billion starting in January.

The baht might appreciate if US economic figures do not show improvement, such as the unemployment rate.

Thai corporations are planning to issue bonds even though their cost of funds is likely to rise. New bond issues next year are expected to total Bt350 billion, Thiti said.

The high cost of the dollar is also an issue for the Fed because the recovery in the US economy is not guaranteed to be strong.


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