YUAN FALL DRAGS DOWN ASEAN CURRENCIES 

The Thai baht and Singapore dollar hit one-year lows. The Malaysian ringgit hit its lowest level in the past seven months.

The Indonesian rupiah and Philippines peso hit multi-year lows.
Interestingly, the Chinese yuan breached its CNY 6.70/USD psychological level last week and is currently at around a one-year low as well. It seems that investors are bearish on the yuan and the negative sentiment has spilled over to Asean currencies. It remains to be seen whether China will let the yuan weaken further or move to keep it in line with regional currencies. If the latter happens, it might be good for Asean nations as China is the number one trading partner among the bloc.
According to China’s Ministry of Commerce data, trade between the country and Southeast Asian countries reached a record high last year. The combined trade among the countries grew at a hefty 13.8 per cent yoy in 2017. Vietnam, Malaysia and Thailand are China’s major trading partners. China’s exports to Asean grew 9.0 per cent while imports from Asean grew 20 per cent last year.
Should China let the yuan move in line with its trading partners in Asean, the resulting stability will be good for bilateral trade between them. This should provide some breathing room for this group of countries. They are expected to suffer from escalating trade protectionism by the US.

THANAWAT PATCHIMKUL
HEAD OF RESEARCH
DBS VICKERS SECURITIES (THAILAND)

RESEARCH DEPARTMENT
TRINITY SECURITIES

Despite the SET Index’s recent rebounds after banks’ 2Q18 earnings results, market EPS has not been raised due to no significant recovery in their main operations. Thus, the SET Index’s rises have come with higher valuations. Strategically, we don’t prefer that short-term investors speculate in the stock market during this period and medium- to long-term investors may continue holding stocks until the SET Index rises to 1,700 points, the best case we expect this month.
•    The baht depreciated to its new record 33.45 per USD from net foreign sales in both stock and bond market, and in line with the weakening yuan. This is expected be a major factor limiting the upside of the SET Index despite net sales of local institutional investors during the past 1-2 days.
•    One more factor that could limit the upside of the SET Index is drops in crude prices after rises in US crude storage to its high since late April of this year.
•    We are keeping a close eye on rises of Thai bond yields, particularly the issues with maturities of five years and more. Thai bond yields have set high records continuously, which has been in line with low demand in bond auctions. Given Thai bond yields’ rises and the SET Index’s rebounds, we expect less attractiveness for new investment in the stock market at the moment, reflecting from a lower earning yield gap and dividend yield gap. Strategically, we prefer to make new investment when the SET Index weakens.