Monday, December 09, 2019

Strong baht hits foreign investment fund returns, TMB says

Jul 22. 2019
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By The Nation

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The strong baht has cut the value of the foreign investment fund (FIF) under fund management, falling by Bt27 billion from Bt1.2 trillion at the start of the year, TMB Bank said.

TMB said the drop reduced the fund’s return by 0.47 per cent. The least impacted funds are those covering oil investment, gold, and property funds, at 0.53 per cent, followed by a balanced fund.

Naris Sathaphondecha, the senior director of the TMB economic analysis centre (TMB Analytics), said that the baht’s appreciation not only affected the export market and tourism businesses but investors’ portfolios - especially the FIF. The currency has risen 5.8 per cent this year. 

The Bt1.2 trillion earlier valuation for the existing FIF funds comprised Bt836 billion in fixed income, Bt243 billion in equities, and Bt30 billion in commodity and property funds.

“The baht’s appreciation widely affects every sector related to business. When investing in US dollars, inventors find returns have less value in baht. The strong baht affects the returns on funds as investors are concerned about the exchange rate. The investment markets have gone down, especially the stock market. Investors will soon know that they are losing profits because of exchange rate. ” he said.

However, the effect of baht appreciation is mostly felt on the fund that has low protection for currency risk, also known as a totally naked protection fund. These fund risk lower net asset values (NAV) or losses on investment. “The most affected fund since early this year has been a mixed fund on gold and oil investments. It received a lower return at 0.53 per cent. Also affected are the discretionary risk prevention groups and partial risk prevention groups, with fund returns dropping 0.44 per cent,” Naris said.

However, the debenture fund was largely unaffected by the appreciation because of risk prevention measures. The fund’s return dropped by 0.21 per cent.

“If you look closely, the return was reduced by Bt27 billion from the value of the fund. The stock dropped by Bt16 billion and the mixed fund fell about Bt6.8 billion. Why did the AUM (assets under management) fall dramatically? It depends on the AUM’s base investment. If there are large investments, the imports will be massive. Therefore, when investors hold investment units, they must consider the impact of a lower exchange rate affecting the returns and whether baht appreciation will occur in the future” Naris added.

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