Bank of Thailand Explains Why Baht is Surging

[Gaybutton]

BANGKOK, July 5 (TNA)

 

Bank of Thailand Deputy Governor Atchana Waiquamdee on Wednesday said foreign capital had flowed into the Thai stock market in a large amount because it is a channel where investors could bring foreign currencies into the country without complying with the 30 per cent reserve requirement or the fully hedged measure.

 

She said the baht continued to strengthen this year partly because of the influx of foreign capital into the Stock Exchange of Thailand.

 

Foreign investors opted to bring the funds into the country through the stock market since such funds are neither required to be 30 per cent withheld nor fully hedged under the capital controls imposed by the central bank.

 

They viewed the Thai bourse is an investment channel where costs are low and returns are higher than other kinds of investment. So, Mrs. Atchana said, overseas investors had moved large amounts of capital into the Thai stock market since early this year as could be witnessed by the continued net foreign buying of stocks.

 

It resulted in the baht appreciating by over 4 per cent, higher than the about 3 per cent expected earlier by the central bank governor.

 

In addition, she said, the baht had strengthened in accordance with the mechanism. It would appreciate whenever foreign funds flow into the country and vice versa.

 

Because of this, the central bank saw no need to intervene in the baht movement, but would continue to keep a close watch on it.

 

(TNA)-E005

[Bob]

I read an article buried deep in the Chiangmai Mail last summer (I have no clue if it was reported elsewhere) that BOT had decided to quietly divest itself of a lot of the US dollars it was holding in its huge pile of foreign reserves. The BOT wasn't going to dump all its US dollars but said, to avoid huge losses should the US dollar tank, that it cause their foreign reserves to be in a more realistic combination of world currencies (i.e., more Euros, Yuan, Yen, or whatever). Because of that article, I transferred more money to my Chiangmai account (and the appreciation alone paid for my last trip).

While it makes sense that China and Japan, the largest holders of US currency, don't want to dump the dollars on the market (it would cause the US currency to collapse and would theoretically cause Chinese and Japanese exports to fall like a rock), the other side of the coin is you don't want to be holding currency that is diving in value. For China last year, they lost about 8% of the value of their reserves (billions) held in US Dollars (and the 4-5% they made in US Treasury notes only offset the loss).

Given Thailand's currency appreciated about 16% (?) last year against the US dollar, it made sense for them to start dumping them to avoid additional losses. But that type of action is usually done quietly so panic doesn't set in.

I suppose currencies act somewhat like products - when there are too many products around and nobody wants them, the price drops.

 

P.S. The Deputy Governor's assertion makes sense if the Thai baht is appreciating against most other currencies; otherwise, his assertion is rather silly.

[Gaybutton]

The whole thing is confusing, especially in light of the article below, in which Japanese investors say they're quite concerned over the strengthening of the baht and wish to see the baht level off at a rate of about 37 baht to the US dollar. It seems to me that the very reason the Bank of Thailand says the baht is strengthening will also end up being the very reason it will end up depreciating.

 

Is Thailand looking at a possible stock market crash? Based on my interpretation of what I'm reading that is a distinct possibility if these investors reverse themselves and start pulling out their money. History tells me that such a move on the part of investors would cause most heavy investors to do the same thing, and if that happens there goes the Thai economy and the exchange rate would then reverse itself.

 

I'm no economist by any stretch of the imagination. If my thinking is way off base, I hope someone who really understands how all this works will respond.

 

The following appears in the BANGKOK POST:

_____

 

Baht On Express Elevator

 

Bangkok (dpa)

 

The Thai baht on Thursday hit a yet another 10-year high against the US dollar amid growing concerns that the strengthening currency is scaring away foreign investment in the kingdom.

 

Foreign exchange traders said the baht, boosted by an influx of foreign funds into the Stock Exchange of Thailand over the past three days, had hit 34.03 to the dollar, its highest rate since August 1997.

 

The baht has already appreciated 4 per cent against the dollar this year, after strengthening 12 per cent against the greenback in 2006.

 

Foreign investors and exporters are expressing growing concerns about the local currency.

 

According to the latest opinion survey conducted by the Japan External Trade Oganisation of 351 Japanese companies operating in Thailand, 64 per cent said the rising baht was their key concern.

 

The survey showed investment sentiment among Japanese firms in Thailand had declined for the first time in nine years with 58 per cent of the respondents saying they would maintain their positions and only 17 per cent planning expansions.

 

"Japanese companies would like to see the currency hover around 37.25 baht to the dollar," the organisation's president, Yoichi Kato, told the Bangkok Post in a recent interview.

 

 

[Bob]

It's been rather obvious that Thailand's economy has been in trouble for the last year or so - probably in significant part due to the boneheaded moves of the current government and the junta - and, unless some political stability occurs soon, I'd guess the recession is on the horizon. If that occurs, then maybe that'll be the stimulus (only one I can think of) that might cause the baht to depreciate against the dollar.

I don't have a clue about the Thai stock market. But, given it's probably run and largely owned by the Thai elite, I wouldn't trust it as far as I could throw it. I'd put my money in Singapore, Hong Kong, and even Vietnam long before I'd invest significantly in the LOS.

[Guest wowpow]

bump