Baht proving to be Southeast Asia's most resilient currency

Thai baht banknotes are seen next to gold offered for sale in a gold shop in Bangkok.
Thai baht banknotes are seen next to gold offered for sale in a gold shop in Bangkok.PHOTO: REUTERS

BANGKOK (BLOOMBERG) - Thailand's currency is proving to be Southeast Asia's most resilient this month, as a trade surplus cushions the impact of unprecedented outflows from the nation's bonds.

The baht has weakened 1.5 per cent in November, the least after the yuan and Taiwan's dollar among 11 Asian currencies tracked by Bloomberg. Foreign funds sold a net US$1.4 billion of Thai bonds this month through Thursday (Nov 17), including a daily record US$762 million on Nov 11, amid a global rout after Donald Trump's surprise US election victory.

"A large current-account surplus and economic fundamentals managed to provide some support for the baht," said Ashley Perrott, who oversees about US$3.5 billion as head of Asian fixed-income at UBS Asset Management in Singapore. The currency will likely remain fairly stable, Perrott added.

Bonds tumbled worldwide on speculation President-elect Trump's plan for fiscal stimulus will spur inflation and add to the case for higher US interest rates. That dimmed the outlook for emerging-market assets, including an outflow of more than US$1 billion from Indonesian, Malaysian, Philippine and Thai stocks since Trump's Nov 8 victory. The flight from Thai bonds in November is the worst among five Asian emerging markets tracked by Bloomberg.

The yield on the 10-year Thai sovereign note reached 2.63 per cent on Wednesday, the highest since January, up 46 basis points since the US election. It was at 2.58 per cent on Friday. Aberdeen Asset Management Plc and AllianceBernstein Holding said the notes offer value at current levels.

"The bond yields are very attractive and that should draw new interest from some foreign funds," said Pongtharin Sapayanon, a fixed-income manager at Aberdeen Asset Management in Bangkok. "There remains ample excess liquidity in the world's financial markets."

Thailand achieved a surplus in the current account, the broadest measure of trade, each month since September 2014. Foreign-currency reserves are about US$8 billion short of the record US$190 billion set in 2011. The Bank of Thailand has kept interest rates unchanged at 1.5 per cent for 12 straight meetings, with inflation tame and economic growth moderate.

The baht was at 35.54 per US dollar as of 7:23am in Bangkok on Friday.

Risks to the outlook include the impact of the expected interest-rate increase by the US Federal Reserve next month, uncertainty over whether Trump will erect trade barriers, and political flux in military-run Thailand amid a royal transition and plans for elections next year.

Benign domestic price pressures and the Bank of Thailand's dovish bias are a positive backdrop for Thai sovereign notes, according to Vincent Tsui, a Hong Kong-based economist at AllianceBernstein. "Nonetheless, there would be volatility in the rates market ahead of December's Fed decision, and we would like to wait for market reaction after the Fed decision," Tsui said.

Uncertainty over the new US administration's agenda will weigh on the baht and fund inflows into early next year, according to Aberdeen's Pongtharin."The dust hasn't settled yet," he said.