KBank urges companies to hedge in coping with volatile environment

Thiti Tantikulanan, head of KBank’s capital markets business division, said the global economy was unlikely to improve to the extent many had expected, especially the US economy, where the unemployment situation has failed to turn around to the extent forecast.
The US financial markets could see the launch of a new round of quantitative easing, or QEIII, by the authorities order to boost the economy, he said.
Moreover, with the sovereign-debt crisis in the European Union taking longer to resolve than had been hoped, and the hike in crude-oil prices expected to pressure the market, external factors are continuing to put pressure on foreign-exchange dealings.
Enterprises would, therefore, be wise to hedge against the current volatility as long as the global economy fails to show a marked improvement, Thiti suggested.
He said businesses, especially those in the agricultural sector, should be aware that the global economic downturn was influencing the forex market to a greater extent than inflation.
KBank expects the baht’s rate against the US dollar this year |to be in a range of 29.50 to 32.
However, the rate against the greenback is no stronger than that for other regional currencies, so businesses should hedge in order to get an acceptable exchange rate, he said, adding that the dollar could weaken as and when QEIII is launched.
US dollar mobilisation is not a problem for Thai banks, even though supply might not be as great as previously.
“We can use inter-bank [facilities] to provide a credit line in dollar terms to customers for short-term loans, and raise
 funds through the bond market |for long-term loans,” said the |executive.
Some sectors, such as aviation, might however face higher funding costs by having to rely on dollar loans, he warned.
KBank has a sufficient dollar reserve to serve investors’ needs, |he said.

BOND MARKET
Meanwhile, the bond market remains an option for institutional investors as they have limited ways to invest in the market thanks to the country’s excess liquidity of Bt1 trillion, Thiti said.
The bank suggests investors should put their money in short-to-medium-term bonds because the yields have not widened.
The yield for short-term bonds is not more than five years, and five to 10 years for medium-term instruments.
Bonds with a tenure of one to three years account for 30 per cent of overall issuance, while those with a tenure of three to five years account for 36 per cent and those of five to seven years represent 27 per cent.
The remaining 7 per cent are bonds with a 10-year tenure.
The private sector this year is expected to raise Bt350 billion to Bt400 billion via the capital market, up from Bt250 billion last |year. About Bt80 billion will be underwritten by KBank, said the executive.
The bank forecasts that the largest segment of bond issuers this year will be from the energy sector, accounting for 26 per cent, followed by the construction and materials sector, accounting for 17 per cent.
Foreign entities issuing baht-denominated bonds will account for 15 per cent.