Thai bond market still in good shape for second half of 2013
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Although the global financial markets have been facing great volatility, investment in the Thai bond market could still increase steadily in the second half of this year.
One of the main boosters was capital inflow, causing it to be more active than in the previous year, not only in terms of higher turnovers but also investment returns.
However, whether the Thai bond market’s sentiment in the rest of this year will continue to grow strongly or at least as actively as in the first half of 2013 probably depends on the following four points.
The first one is related to the recovery and growth rate of the Thai economy. Gross domestic product grew more slowly than expected in the first half of this year. Among the major reasons were signs of a Chinese economic slowdown, which has already started to affect Thai exporters. China is one of the Thailand’s biggest trading partners, with 12 per cent of all overseas shipments.
In addition, spending on a government water-management project has been delayed, as it requires public hearings, according to the Central Administration Court.
This may cause the Bank of Thailand to revise the project’s disbursement forecast for 2013 to only Bt19 billion, down from a previous forecast of Bt54 billion, and to adjust the GDP growth forecast to 4.2 per cent, declining from its forecast of 5.1 per cent in April.
Another issue that needs attention is the US stimulus package. Since the Federal Reserve chairman said it might scale down its quantitative-easing programme this year if the economy improves substantially in line with expectations, the bond markets in emerging countries have seen more volatility. Foreign investors sold various types of assets and turned to holding cash instead. The resulting capital outflow then caused the price of securities to fall sharply.
As can be seen from the net outflow of Bt95 billion in May and June, this capital outflow led to 10-year Thai government bond yields increasing by 50 basis points (bond prices fell).
Third, the returns on investment are more attractive. Because of a higher investment return with a lower risk compared with other countries in the region, the Thai bond market seems to be of interest to foreign investors. If Thai bond yields remain appealing and there are favourable factors that help attract capital inflows, such as Thailand’s sounder economic fundamentals than several other countries in the region, foreign funds will flow into the Thai bond market again.
In addition to the three points mentioned above, another important factor that needs concern is various events that can weaken investor confidence significantly, such as natural disasters or political instability. Without these situations, the investment climate in the Thai bond market would be as good as in the first half of this year.
However, whether the Thai bond market moves in the expected direction or not this year, investors will need to monitor it closely.
The author, Porpit Yodsang, is assistant manager of research and development for the Thai Bond Market Association. She can be reached at [email protected], or 02-252-3336 ext 213.
