Factors to watch for investors in Thai bond market 2013
Although the global economic slowdown due to the recession in the United States and debt crisis in Europe was becoming more widespread in 2012, Thailand's economic performance showed good signs of growth, supported mainly by domestic demand.
The main drivers were the increases in household consumption and private investment for reconstruction after the floods in 2011. With strong economic growth and impressive returns in the capital market, investors, including foreign investors, became more confident about buying in the capital market.
Capital inflows throughout the year were one of the main boosters of the bond market, causing it to be more active than the previous year, not only in terms of higher turnover but also investment return.
Here are some major factors that we should consider and keep an eye on:
l The recovery and continued growth of the Thai economy. Last year, the government’s economic stimulus measures to increase household income and private consumption, such as the Bt300 daily minimum wage, first-car scheme and first-home scheme, helped push gross domestic product up by an expected 5.7 per cent.
The Fiscal Policy Office has forecast that economic growth this year will be 5 per cent, buoyed by an increase in government spending.
If the economy continues to grow as expected, investors will be more confident in the capital market. Also, the bond market will continue to be in good shape and be at least as active as last year.
l Recovery and stimulus packages of other countries around the world. Last year, many countries launched packages to stimulate their economies by injecting money and keeping their policy rates low.
Some examples are the quantitative easing of the US, the asset purchase programme of Japan and outright monetary transactions of the European Union. These measures seemed unable to revive weak economies in a short period. More time will be needed to heal them.
However, the stimulus packages of developed countries will be beneficial to emerging countries, including Thailand. Capital is expected to continue pouring into emerging countries where returns on investment are more attractive. Last year, foreign investors were net buyers of Bt72.72 billion of Thai stocks and Bt242.90 billion of Thai long-term bonds.
This year, the economies of many countries are expected to improve. The financial crisis in Europe and “fiscal cliff” in the US should be in better condition. However, will the flow of foreign investment into the Thai financial market be high as in 2012? This might depend on the third factor:
l Attractive investment return. Last year, yields on two- and 10-year government bonds as of December were 2.9 per cent and 3.5 per cent.
These returns remained higher here than in other countries such as the Philippines and Indonesia. If Thai bond yields remain as attractive, foreign funds will surely continue to flow into the Thai bond market and brighten the investment climate to be as good as last year.
Beside these three factors, if a fourth factor does not happen, which is other events such as natural disasters or political instability, to reduce investor confidence significantly, overall investment in the Thai bond market would continue to grow steadily this year.
However, whether the Thai bond market moves in the expected direction or not this year, investors will need to monitor it closely.
Porpit Yodsang is assistant manager of The Thai Bond Market Association.
