Speculators fuel upward trend
The strengthening of the baht is partly driven by speculators switching from low-return US and euro-zone markets to Thai bonds to profit not only from their higher yields but also movements in foreign exchange, according to Kasikornbank.
"Institutional investors used to be the main players in the bond markets in Asia and Thailand, but today individual investors who suffered from the zero-per-cent policy rates in the US and the euro zone are joining the bond market through pension funds and mutual funds," Thiti Tantikulanan, head of capital markets for KBank, said yesterday.
Last year foreign bond-holdings surged to 8.5 per cent or Bt702.26 billion of the Thai market here from 1.1 per cent or Bt48.41 billion in 2007.
Investors are seeking higher returns in bonds in the healthy growth markets.
Thailand is a favourite, as its currency is competitively priced compared with neighbouring countries'.
In the first two weeks of this year, foreign investors purchased a net US$750 million (Bt22.3 billion) in Thai bonds against $156 million in Thai stocks.
In the period, the baht appreciated by 2.69 per cent versus 2 per cent for the yen and 0.5-1.5 per cent for neighbouring countries' currencies.
The upward pressure on the baht would continue this year due to the uncertainty over US public debt and the euro-zone economy.
The unclear picture of the US debt ceiling, which Congress will consider next month, shoould make the US dollar stronger.
The Bank of Thailand is expected to intervene when the baht passes Bt29.50 against the US dollar.
KBank expects the baht to appreciate to Bt29.50 around midyear and reach Bt29 at year-end. Thai traders could lose competitiveness if they cannot quote prices with partners, but no sign of this has been seen yet.
However, industries with no import content such as garments and agriculture are at "high risk" while the baht heads up, Thiti said.
KBank, the leader in the local bond market, expects new issues of corporate debentures to decline to Bt409.58 billion this year from Bt509.40 billion last year because banks will not issue sub-debt after this instrument became unattractive when Basel III was implemented on January 1.
The growth of the bond market in Thailand was partly due to mutual funds and pension funds in the US moving to invest more in Asia bonds, Thiti said.