Monday, July 06, 2020

Baht to maintain strength despite softening yuan: experts

Aug 06. 2019
Tim Leelahaphan, Standard Chartered Bank economist.
Tim Leelahaphan, Standard Chartered Bank economist.
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The depreciation of the yuan against the US Dollar will not significantly impact the baht’s strength, but will cause investor sentiment to drop and leading to an outflow of capital from Thailand’s stock market, market experts and economists agree.

On Monday morning, the yuan depreciated by 7 per cent against the US dollar, marking the first time the renminbi has depreciated against the dollar since May 2008.

“The baht has not depreciated after the yuan’s weakening earlier [Monday] as Thailand’s market is still seen by foreign investors as a safe haven,” said Tim Leelahaphan, Standard Chartered Bank’s economist in an interview with The Nation.

The yuan’s depreciation may cause market sentiment in Thailand to drop briefly, leading to an outflow of capital from the Kingdom’s equity market, he said.

The Stock Exchange of Thailand (SET) reported a Bt2.6 billion outflow of foreign investment when the market closed on Monday.

However, Tim expects Thailand’s bond market to continue performing strongly.

On Monday, Thailand’s bond market saw in inflow of Bt1.46 billion from foreign companies, according to the Thai Bond Market Association (ThaiBMA).

The yuan’s depreciation, Tim said, will reinforce investors’ sentiment that Thailand is a relatively safe market in which to invest, especially after it’s stability and sovereignty ratings have been improved recently by rating agencies.

The baht was valued at Bt30.8 per US dollar on Monday, according to the Bank of Thailand.

Standard Chartered predicts the baht will remain below Bt31 per US dollar in the upcoming weeks, but expects it to depreciate back to around Bt31 baht by the end of the year.

Mana Nimitvanich, first vice president of Krungthai Bank’s Global Business Development and Strategy Group, said in a separate interview that the yuan’s depreciation will cause the market to worry that the trade war will worsen, leading to outflows from Thailand’s stock market.

Meanwhile, the baht has not been significantly impacted by recent events, he said. The country’s bond market is also expected to continue witnessing inflow as Thailand is still seen as a safe haven.

However, if the market is correct in predicting that the yuan’s depreciation will lead to retaliation from President Trump, further escalating the ongoing trade war, the economic fundamentals of Thailand and other countries in the region will be negatively impacted by Trump’s tariffs.

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