Thai bonds, stocks advance in wake of US fiscal cliff move
Thailand's bond yields and stocks have continued to advance thanks to the US Congress' action to avoid a "fiscal cliff", which convinced investors of stable recovery of the US economy and continued global prosperity, including the Thai economy.
As stability somewhat returns to the United States, Thai Finance Minister Kittiratt Na-Ranong is convinced that the Kingdom's economy will be able to perform as well as in 2012 or even better.
The National Economic and Social Development Board expects 2012 gross domestic product to register growth of 5.5 per cent. In the first 11 months of last year, exports grew by 2.5 per cent, more than in the same period of 2011. For this year, the Commerce Ministry's export-growth estimate is 9 per cent.
After a meeting of nine economic-related ministries chaired by Prime Minister Yingluck Shinawatra, Kittiratt said solutions to the US slowdown could benefit the global economy in the long term after Congress approved tax and fiscal measures that should lead to more fiscal discipline.
"The US solution seems to be in the right direction, particularly monetary and fiscal disciplines, and reduction of borrowings to [stay below] the debt ceiling. The Thai economy may be affected. The baht may see some appreciation, but it may not be [out of line] with other currencies. The overall economy's stability remains, with satisfactory trade and current accounts," Kittiratt said.
He anticipates a higher trade surplus this year as the value of machinery import will be lower than in 2012, when imports were driven by post-flood restructuring. He also insisted that fiscal and monetary conditions would remain satisfactory thanks to efficient reduction of budget deficits and expenditures, while public investment would drive the economy in 2013.
According to PM's Office Minister Nivatthamrong Boonsongpaisal, the government will closely monitor further developments in the United States in dealing with its massive debt.
The improved economic signals from the US prompted capital to flow to other countries, including Thailand. Currently, the Kingdom's foreign reserves total US$181 billion (Bt5.5 trillion), an amount regarded as conducive to high stability.
As a result of capital inflows, the SET Index gained 0.07 per cent to another 16-year high at 1,408.41 points. In the first two trading days of this year, foreign investment on the Stock Exchange of Thailand was in the net-buy position with net purchases of Bt1 billion.
The 10-year bond yield also increased by 5 basis points from 3.52 to 3.57 per cent on Wednesday, said Niwat Kanjanaphoomin, president of the Thai Bond Market Association, who attributed the increase to investor expectation that interest rates in the US and Thailand will not rise much this year.
"US 10-year Treasuries rose 12 basis points from 0.75 per cent on the same day," he said.
On Wednesday, foreign investors were also net bond buyers, with a net-buy position of Bt1 billion. Their combined bond holding is currently worth Bt700 billion out of combined outstanding bond value of Bt8.2 trillion.
Like economists and analysts, Niwat considers that the fiscal situation in the US needs to be closely monitored. Lawmakers still have to negotiate on spending cuts and the debt ceiling. A higher debt ceiling will lead to more borrowing by the US federal government, resulting in higher bond supply in the market.
The long-term interest rate may rise but only slightly, as the US still wants to keep the rate low to maintain economic recovery. He also expects Thailand's policy rate may rise a bit because of inflationary pressure from rising wages and consumer spending.
He expects the public sector and corporations to issue a total of Bt1 trillion of bonds this year, slightly lower than last year.
"While there will be a large supply, there is also high demand from institutional investors and individuals," Niwat said.
Teerana Bhongmakapat, former dean of Chulalongkorn University's economics faculty, said that if the United States raised its debt ceiling from the current level of $16.39 trillion, it might need to offer higher interest rates when it issues bonds to raise funds. Then some capital from Thailand may flow back into US Treasuries, he said.
US politicians have not yet agreed on spending cuts to address the budget deficit. While Democrats want to increase taxes on the rich to finance debt, Republicans prefer spending cuts.
President Barack Obama is expected to raise about $600 billion from the tax rise agreed on Tuesday over the next 10 years, while he originally planned to raise a total of $800 billion.