Thursday, July 18, 2019

Bond market sensitive to political developments

Apr 09. 2019
Paiboon Nalinthrangkurn,
Paiboon Nalinthrangkurn,
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By The Nation

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Thailand’s political uncertainty has been a drag on both public and private investment, given this year’s estimated stagnation in the Thai bond market and a turn to neutral in the country’s three-month investor confidence index this April after a bullish March.

Tada Phutthitada, president of the Thai Bond Market Association (ThaiBMA), expected the bond market to be flat until the end of this year. He hoped the Thai political picture to become clearer in June with a new government and its policies, while awaiting possible impacts from external factors, including the US-China trade war, Britain’s exit from the EU and the US economic expansion in the latter half of this year.

ThaiBMA has forecast new bond issues worth about Bt800 billion or in a range of Bt750-Bt850 billion this year, about 60 per cent, or Bt580 billion, of which are expected for refinancing, he said.

If the Thai economy improves with clear political developments and higher private investment, new bond issues may exceed estimates, he said.

New bond issuance in the second quarter is likely to see flat growth quarter on quarter. The first quarter saw a historic high in new bond issues, given mergers and acquisitions of large-sized companies that raised capital through debentures, he said.

In the first quarter of this year, outstanding bonds totalled Bt12.96 trillion, up 1.3 per cent from the end of this year with an average daily trading turnover of Bt81.36 billion, up 3.21 per cent. Foreign investors net sold Thai bonds totalling Bt42.31 billion in the first three months of this year.

At the end of this year’s first quarter, foreign investors had net accumulated investments in Thai bonds worth Bt924.99 billion, or 7.3 per cent of the total Thai bond market. Foreign investors held Thai bonds with a longer average maturity of 8.5 years, compared to those with average maturity of 7.88 years held at the end of last year.

Paiboon Nalinthrangkurn, chairman of the Federation of Thai Capital Market Organisations, said that the three-month Investor Confidence Index in April turned to neutral from bullish, falling by 17.72 per cent to 107.53 amid concerns over political stability as well as the outcome of trade negotiations between the United States and China.

Foreign investor confidence remained bullish while the confidence of proprietary portfolios, individual investors and local institutional investors was neutral.

The European Central Bank’s postponement of a policy rate hike, the Bank of Japan’s monetary easing, Brexit and global crude prices must be followed up on, Paiboon said.

Thanavath Phonvichai, director of the University of Thai Chamber of Commerce’s Centre for Economic and Business Forecasting, said the Thai political situation is now the major variable for the Thai economy this year.

If the formation of the new government is delayed, leading to street protests, the centre predicts that the Thai economy would grow slower than 3.5 per cent this year as both foreign and local investors are expected to postpone investment. Foreign tourists, particularly from China and other Asian countries, may cancel their trips to Thailand until the situation returns to normal, he said.

The centre maintains its growth forecast in a range of 3.5-3.8 per cent this year, assuming an easing of the US-China trade war and declaration of its policies by the new government by September, he said.

Small, hazardous particles known as PM2.5 in Bangkok and its vicinity, and the North early this year have inflicted losses of about Bt20 billion to Bt25 billion on the Thai economy, or 0.1-0.2 percentage point of economic growth, he said. Despite such economic losses, the Thai economy has been compensated by election spending of around Bt30 billion by Thai political parties.


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