Baht joins other emerging currencies' fall

Global financial markets fell yesterday while foreign investors continued selling Thai shares. Foreign investors remained net-sellers, with sells outpacing purchases by Bt1 billion. Month to date, foreign net-sells amounted to Bt12.66 billion. This pushed down the year-to-date net-buys to Bt56.5 billion. The Stock Exchange of Thailand’s main index slid by 5.48 points or 0.48 per cent to 1,147.43 points, on very thin turnover of Bt18 billion.
As shown by a fall in the Bloomberg-JPMorgan Asia Dollar Index ahead of the EU Summit, the US dollar has appreciated sharply against Asian currencies. Yesterday, the baht retreated for a fourth day after exchange data showed global funds sold US$140 million (Bt4.5 billion) more Thai equities than they bought last week, sparking fears of capital outflows as European banks are in the middle of de-leveraging.
The baht consequently swung sharply, trading in the range of 31.78-31.96 against the dollar yesterday, extending the depreciation from the previous closing of 31.76. The baht was 31.92 per dollar on January 16.
“Foreigners have been net sellers in Thailand for quite some time, and that put downward pressure on the baht,” said Disawat Tiaowvanich, a foreign-exchange trader at Bangkok Bank. “Sentiment remains weak until the EU summit. Dollar demand from importers seems to be more than baht demand from exporters.”
The baht may trade between 31.60 and 32 this week, Disawat said.
The baht’s depreciation is somewhat lower than those of the currencies of the four biggest emerging markets – Brazil, Russia, India and China, known as BRICs – which could worsen as the euro crisis continues hurting the global economy. Currencies of those four countries, whose economies grew more than fourfold in the past decade, have posted their biggest declines since at least 1998.
For the first time in 13 years, the Brazilian real, Russian rouble and Indian rupee are weakening the most among developing-nation currencies, while the Chinese yuan has depreciated more than in any other period since its 1994 devaluation.
Investors are fleeing the BRICs, after Brazil’s consumer default rate rose to its highest level since 2009, prices for Russian oil exports fell to an 18-month low, India’s budget deficit widened and Chinese home prices slumped. Investors are bracing for more losses as economic growth slows.
Investors withdrew $6.3 billion from Brazil’s stocks and bonds in May, the most since at least 2010, central bank data show. Russian capital outflows reached a net $46.5 billion in the first five months of the year, including $5.8 billion in May.
“All the BRICs looked ugly,” said John Taylor, of currency hedge fund FX Concepts in New York. The real and rouble will suffer “fairly decent” declines later this year as a global recession spurs investors to buy dollars as a haven, he said.
Investors are still too bullish on assets in the BRIC nations as Europe’s debt crisis weighs on emerging economies, said Eric Fine, a money manager at Van Eck Global. “They will do poorly when the world is doing poorly,” Fine said. “I don’t believe in decoupling.”
Yesterday, billionaire investor George Soros called on the European Union to start a fund to buy Italian and Spanish bonds, saying policy-makers should create a European Fiscal Authority to purchase the debt in return for the countries implementing achievable budget cuts.
France and Italy are also urging Germany to take decisive action to end the two-and-a-half-year debt crisis after Spain’s 10-year bond yields jumped to more than 7 per cent last week, a level that economists consider unsustainable.
The European leaders are under intense global pressure to contain the region’s debt crisis, and head off a potentially catastrophic economic collapse. The talks, which are aimed at working out a road map for tighter European integration, are likely to disappoint overall, said Standard Chartered.
“We do not expect anything which will soothe the renewed sovereign debt tensions – in particular over Spain and Italy,” the bank said in a note.
Optimism quickly faded over a deal on Friday in which the leaders of the euro zone’s four top economies vowed new measures to support growth by mobilising up to