Baht Rises With Stocks, Bonds as Growth Optimism Boosts Inflows

The Thai baht posted its biggest two-month gain since October as overseas investors increased purchases of the nation’s assets on optimism the military government will revive economic growth.

The junta, which took control in a May 22 coup, approved an infrastructure investment plan on July 29 that will include the construction of new railways, mass transit systems in Bangkok and nationwide highways. The economy, which shrank in the first quarter, may expand 5 percent in 2015 from about 2 percent this year on higher spending and a rebound in exports and tourism, the finance ministry said yesterday. Bonds and stocks also rose.

The currency appreciated 1 percent in July to 32.128 per dollar as of 4:30 p.m. in Bangkok, adding to June’s 1.2 percent gain, according to data compiled by Bloomberg. It reached an eight-month high of 31.74 on July 23. Global funds bought a net $5.05 billion of local debt this month through yesterday, the biggest inflow since February 2012, Thai Bond Market Association data show.

“There is room for more foreign fund inflows because Thailand’s economic outlook has turned more upbeat,” said Pongtharin Sapayanon, a fixed-income fund manager at Aberdeen Asset Management Plc in Bangkok. “Foreigners have raised their positions in Thai financial assets after selling them off during the political deadlock.”

The SET Index of Thai shares rose 1.1 percent in July for a sixth straight month of gains as overseas investors pumped a net $460 million into the nation’s equities through July 30, halting two months of outflows. It dropped 1 percent today.

Bonds Climb

In the local bond market, 10-year notes posted the first monthly gain in three. The yield on sovereign debt due in April 2024 fell 19 basis points, or 0.19 percentage point, to 3.74 percent, according to data compiled by Bloomberg. It reached a two-month low of 3.68 percent on July 22.

ING Groep NV predicts the yield will drop to 3.4 percent by year-end, Singapore-based economist Prakash Sakpal wrote in a research note yesterday.

Army Chief Prayuth Chan-Ocha completed 92 billion baht ($2.8 billion) of overdue payments to rice farmers last month and sped up approval of foreign direct investment projects.

The central bank will keep its benchmark interest rate unchanged at 2 percent at an Aug. 6 policy review, according to the median estimate in a Bloomberg survey. ING expects the rate to stay on hold for the rest of the year, its report showed.

The baht fell 0.6 percent in Bangkok today for a third day of declines, headed for its first weekly loss since June 20. One-month implied volatility, a measure of exchange-rate swings used in pricing options, dropped 30 basis points in July to 4.31 percent.

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