Foreign capital inflows likely if US monetary policy continues, bond association says
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The Thai Bond Market Association expects foreign capital worth Bt70 billion to Bt100 billion to flow into the bond market this quarter on the likely continuation of monetary easing in the United States.
“For the rest of this year, foreign capital is expected to be net buyers of Thai bonds. In September, foreign investors were net buyers of Thai bonds worth Bt71.75 billion,” Niwat Kanjanaphoomin, president of ThaiBMA, said yesterday.
There remain risks to capital movement. Thailand is likely to see a downward revision of this year’s growth estimates, while floods continue in several areas.
The US is likely to continue its quantitative easing programme on expectation of the US debt-ceiling problem being resolved in due time. This should cause more foreign capital to flow into Thailand, which could strengthen the baht.
The baht was little changed from September 27 and declined 0.1 per cent yesterday to 31.316 per US dollar, according to Bloomberg. One-month implied volatility, a measure of expected swings in the exchange rate used to price options, dropped 4 basis points from a week ago to 7.47 per cent, Bloomberg said.
If the US is not able to raise its debt ceiling in due time, with its first default, the Thai bond market is predicted to see foreign capital flow out, but not as heavily as some expect, as foreign investors are not major players in the Thai bond market. Only short-term notes would likely be affected, Niwat said.
Foreign investors are net holders of less-than-six-months Thai bonds worth Bt164.72 billion, or about 62 per cent.
Outstanding Thai bonds total Bt8.92 trillion, up 4 per cent from the end of last year. Short-term notes amount to Bt1.77 trillion, down 3 per cent. Long-term bonds account for Bt7.14 trillion, up 5.8 per cent.
Based on a survey by ThaiBMA, state enterprise bond issuance hit a record. State enterprise bonds issued from the beginning of this year totalled Bt712.34 billion, up 14.6 per cent from the previous year. The Bank for Agriculture and Agricultural Cooperatives issued the highest amount of bonds combined at Bt210 billion or 29 per cent of the new bonds.
In the first nine months, financial business and property groups saw the highest amount of new debenture issues, among others, or 20 per cent of total new bonds in the primary market. The construction-materials group came second with a 12-per-cent share.
Commercial banks’ new debentures totalled Bt25.86 billion in the first nine months. Last year saw a whopping Bt180.21 billion in new debentures floated by commercial banks because of Basel III requirements.
For the last three months of this year, about Bt90 billion to Bt120 billion worth of private sector new debentures are expected. About Bt400 billion to Bt420 billion in new debentures are expected for the whole year.
The next Monetary Policy Committee meeting in the middle of this month is expected to decide on the policy rate based on Thai economic figures.
If the figures do not drop sharply, the MPC is expected to leave the rate unchanged at 2.50 per cent, Niwat said.
The Bank of Thailand’s proposed New Opportunity Fund, whose capital would likely be drawn from international reserves, may invest in risk-free assets, he added.
The Joint Standing Committee on Commerce, Industry and Banking plans to set up a working group with the Finance Ministry and the Bank of Thailand to monitor the baht.
After the committee’s meeting yesterday, chairman Isara Vongkusolkij said a proposal would be made to Commerce Minister Niwatthumrong Boonsongpaisan to establish the working group to monitor the baht against trading and rival countries. The group is expected to be formed this week.
The first meeting is expected soon, as the global economic uncertainties have weighed heavily on both exporters and importers in Thailand, said Isara, who also heads the Thai Chamber of Commerce.
Chartsiri Sophonpanich, president of the Thai Bankers’ Association (TBA), said the United States might solve its budget problem, particularly the debt-ceiling issue, by the latter’s October 17 deadline, so there might not be any effect on the global and Thai economies.
However, there could be some volatility in the money markets until then.
Isara said exchange rates should be monitored, as Thailand has changed its position from an importer to a manufacturer with trade and investment abroad.
The private sector committee will ask the TBA to help solve trade problems and lower barriers to trade in terms of exchange rates.
This is seen as a preparation for the roadshows, led by Prime Minister Yingluck Shinawatra and her team, to Ethiopia, South Africa, Russia and Japan this year, while private-sector members will join for trade negotiations.
As for the floods in 26 provinces causing estimated damage of Bt5 billion in suspended trade and devastated agriculture areas, manufacturing remains unaffected so far, he said.
Payoongsak Chartsuttipol, chairman of the Federation of Thai Industries, said the federation had set up two working groups to assist small and medium-sized enterprises in strategy-making and research and development.
