Baht Traders Most Bullish Since Thaksin Ousted: Southeast Asia

Currency traders are giving Thailand’s government the biggest vote of confidence since 2006, when Prime Minister Yingluck Shinawatra’s brother was ousted as leader in a military coup.

Call options granting the right to buy the baht in a month’s time cost 0.16 percentage point more than put contracts on March 20, the biggest premium since July 2006, two months before Thaksin Shinawatra was toppled, according to data compiled by Bloomberg. That compares with an average discount of 0.72 percentage point in the past five years. The so-called risk-reversal rates show it is cheaper to bet on declines than gains in Indonesia’s rupiah, Malaysia’s ringgit, the Singapore dollar and the Philippine peso.

Fitch Ratings raised its assessment on Thailand this month, citing a resilient economy and a more stable political environment. Yingluck has helped ease tensions since taking power in 2011 by shelving measures that would allow her brother’s return. The baht has rallied 4.6 percent versus the dollar this year, the most in the region, and this week reached its strongest level since the currency’s devaluation in July 1997 sparked the Asian financial crisis.

“Thailand’s politics, which were always a cause for concern, have been so stable, domestic demand looks to be very strong and the growth rate is outstanding,” said Minoru Shioiri, chief manager of the credit and foreign-exchange trading division at Mitsubishi UFJ Morgan Stanley Securities Co., a unit of Japan’s largest publicly traded lender. “We see many factors that make investors so bullish on Thailand,” he said a March 19 interview from Tokyo.

Bond Inflows

Overseas investors have pumped a net $8.9 billion into Thai sovereign debt in 2013, data compiled by Bloomberg show, more than seven times the net inflows into Indonesian notes.

That’s helped push the Thai 10-year government bond yield down 14 basis points since the end of January to 3.56 percent yesterday, data compiled by Bloomberg show. Yields on similar-maturity securities from Malaysia fell five basis points to 3.49 percent over the same period, while the Indonesian rate climbed 15 basis points to 5.48 percent. Thailand is rated the third-lowest investment-grade by Standard & Poor’s, one level below Malaysia and three rungs above Indonesia.

The nation doesn’t face the uncertainty tied to impending elections in Malaysia, or a large current-account deficit like Indonesia, Bank of Thailand Governor Prasarn Trairatvorakul said on March 20.

Civil Unrest

Between Thaksin’s ouster in September 2006 and Yingluck assuming office, the country had four prime ministers. During the period, Thai courts disbanded two parties tied to the 63-year old tycoon and disqualified two prime ministers allied to him. There has been major civil unrest including the closure of Bangkok’s airport in 2008 and the occupation of a commercial district in the capital by Thaksin supporters in 2010.

Yingluck’s government is the most stable since the 2006 coup, making Thailand a standout in the region, said Suwat Bumrungchartudom, an analyst at Bualuang Securities Pcl.

“We see no competitors in parliament and the ruling party has expanded its control in many parts of the country,” he said in an interview in Bangkok yesterday.

Southeast Asian currencies have lagged behind the baht this year, with the peso strengthening 0.6 percent, the rupiah weakening 1.1 percent, the ringgit declining 1.8 percent and the Singapore dollar losing 2.3 percent, according to data compiled by Bloomberg.

Current Account

Overseas investors pulled $220 million from Thai stocks in first four days of this week, paring inflows this year to $83 million, exchange data show. The benchmark share index has retreated 6.4 percent since closing at the highest level since 1994 on March 15.

The Thai currency, which fell 0.1 percent to 29.23 per dollar as of 11:15 a.m. in Bangkok from yesterday, will end the year at 29.3, according to the median estimate of 26 economists surveyed by Bloomberg. There is no need for short-term measures to curb the baht’s appreciation as Thailand’s economy will adjust before it strengthens to 27, Finance Minister Kittiratt Na-Ranong said yesterday. Policy makers should act before the rising currency does too much damage to exports, he said.

The current-account surplus will probably shrink this year, offsetting appreciation pressure on the baht, said Nalin Chutchotitham, an analyst at Kasikornbank Pcl. The country posted a $2.2 billion deficit in the broadest measure of trade in January, the most since Bloomberg began compiling the data in 1991, as imports surged 38 percent and exports climbed 16 percent, according to central bank data.

Faster Growth

“We still think that the baht has some more room to rise, but not at the same pace that it has been so far this year,” Nalin said in an interview in Bangkok yesterday. “Foreign inflows probably won’t continue at the same pace as investors have to take profits.” Kasikornbank revised its end-2013 baht forecast upward yesterday to 28.50 from 29, according to its research note.

Southeast Asia’s second-largest economy grew 6.4 percent last year as it recovered from floods in 2011 that disrupted production at manufacturers including Honda Motor Co. and Western Digital Corp. That was faster than expansions of 6.2 percent in Indonesia, 5.6 percent in Malaysia and 1.3 percent in Singapore. The Bank of Thailand raised its 2013 growth forecast to 4.9 percent in January from 4.6 percent in October.

The baht accounted for almost 12 percent of Kokusai Asset Management Co.’s Asia Pacific Sovereign Open fund at the end of last month, up from 2 percent a year ago, according to the company’s website. The fund has made a return of 13 percent this year, beating 95 percent of its peers, according to data compiled by Bloomberg.

Japanese Easing

“When you compare Thailand with neighboring countries like Malaysia and Singapore, you can be more bullish on Thailand due to its stronger economic performance and better currency outlook,” Tatsuya Higuchi, a senior portfolio manager at Kokusai Asset, which has $36 billion under management, said in an interview yesterday. “We have added our holdings of Thai bonds since late last year.”

Union Investment Privatfonds is adding to holdings of Thai sovereign bonds, attracted by the nation’s fundamentals and the currency, according to fund manager Christian Wildmann.

“A brighter looking global economy and the weakening Japanese yen are two reasons why we regard the baht as an attractive candidate for appreciation in 2013 due to Thailand’s role in the global supply chain,” Frankfurt-based Wildmann said in an interview on March 8.

If loose Japanese monetary policy that has contributed to the yen’s 18 percent plunge against the dollar since the end of September succeeds in reviving exports from the North Asian nation, that will be supportive of the baht, according to Nomura Holdings Inc. Japanese companies accounted for 64 percent of projects approved by the Thai Board of Investment in 2012, data compiled by the Japan External Trade Organization show.

“Japan’s reflation policy could actually be positive to Thailand because it doesn’t compete with Japan,” Craig Chan, Singapore-based head of Asia ex-Japan currency strategy at Nomura, said in a March 20 interview. “It’s basically a supply-chain center for Japanese exporters and if the policy works, it will benefit Thailand via growth.”

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