Weakening dollar will make Thai investments attractive next year, predicts expert

The baht is expected to remain strong next year, moving up toward Bt29 against the dollar from the current rate of Bt30, he said. 
Krungsri predicts that the baht will appreciate to Bt29.75 to the dollar in the second quarter of next year, and then up to Bt29.25 in the fourth quarter. 
The key reason for the weakening of the US dollar is that the Federal Reserve is expected to maintain its low-interest rate policy.  
The US has also been facing deficits in its budget and current account, contributing to a weaker dollar. The International Monetary Fund has projected that the US government will run a large budget deficit equivalent to 18.7 per cent of the GDP and a current account deficit at 2.1 per cent of the GDP this year. 
The baht was the strongest currency in the region last year, soaring 8.6 per cent before falling 8.63 per cent in the first quarter this year, the second weakest compared to the Indonesian rupiah, which fell 14.98 per cent.
However, in the fourth quarter of this year, as of November 24, the baht rose 4.12 per cent, second only to the Indonesian rupiah, which jumped 4.91 per cent. 
Apart from the currency, Thailand’s stock market has also been highly volatile this year. Thai stocks plunged in March when foreign investors made a net sell of about Bt80 billion due to panic over Covid-19.   
Foreign investors returned to the Thai stock market in November following news of a breakthrough in Covid-19 vaccines and Joe Biden’s win of the US presidency. Though foreign investors dumped Thai government bonds in March, they returned later in the year and purchased more in November. 
“In the first half of the year, investors were risk-off, but now they are risk-on,” said Tak, referring to investors’ appetite for exposure to risks.
In the first 11 months of 2020, foreign investors made a net sell of Thai stocks and bonds worth Bt260 billion and Bt48 billion, respectively.
Krungsri Research forecast that Thailand would have a current account surplus worth US$18.8 billion (Bt569 billion) next year, which is considered large even though it is lower than the surplus of $20.3 billion projected for this year. 
“The years of current account surplus [close to $40 billion in 2019] is making the baht stronger as capital inflow is larger than outflow,” Tak said. 
Thai bonds are also promising for investors as low inflation supports investment returns, given the low policy interest rate of 0.5 per cent, he said. 
Yields of 10-year bonds issued by the government is expected to be 1.1 per cent by the end of next year, up from 0.829 per cent at present. However, he said, US government bond yields are expected to be 1.55 per cent by the end of next year, up from 1.412 per cent currently. 
Tak forecast that the Bank of Thailand’s Monetary Policy Committee will leave the policy rate unchanged at 0.5 per cent next year.
He also believes that the Biden administration will ease the degree of trade protectionism to some extent, which will lessen the pressure on regional currencies, especially the Chinese yuan. 
In the first 11 months, the yuan rose 6 per cent against the dollar, which is unusual, Tak said. 
China’s economic growth has almost returned to pre-Covid level despite the appreciation of the yuan, so Thailand should learn from China and restructure industries to boost its competitiveness in the export market, Tak said. 
Krungsri Research has forecast 3.3 per cent growth for Thailand next year, up from the projection of 6.4 per cent contraction this year. Exports, a major growth engine, are expected to expand 4.5 per cent up from the projected 7.5 per cent contraction this year.
Tourist arrivals, however, will only be about 4 million next year, down from 6.7 million this year and 39.7 million last year. “We are worried about slow recovery in the tourism sector,” Tak said.