Thai baht advances after king's death in sign selloff may unwind

The baht rose on Friday (Oct 14) along with an exchange-traded fund tracking Thailand's shares following the death of King Bhumibol Adulyadej.
The baht rose on Friday (Oct 14) along with an exchange-traded fund tracking Thailand's shares following the death of King Bhumibol Adulyadej.PHOTO: REUTERS

KUALA LUMPUR (BLOOMBERG) - The baht rose on Friday (Oct 14) along with an exchange-traded fund tracking Thailand's shares following the death of King Bhumibol Adulyadej, the world's longest reigning monarch.

"The key will be to see a smooth transition of power to the new king," Mr Tony Hann, head of equities at Blackfriars Asset Management in London, said after the death was announced on Thursday evening in Bangkok. "If that occurs, then I think the recent setbacks provide a good entry."

The baht rose 0.7 per cent to 35.360 per US dollar as of 7.11am in Bangkok, heading for its first two-day gain this month. The local stock market had rebounded with the currency on Thursday, closing higher before the king's death was announced, while the iShares MSCI Thailand Capped ETF climbed by the most since February in the US.

Earlier in the week, Thai assets had tumbled after the royal palace said on Sunday that King Bhumibol's health was "unstable".

Thailand's government called on the nation to avoid "joyful events" for 30 days, to dress in mourning for a year and pray for the king's soul to protect the nation. It also signaled that the 88-year-old king's only son will take the throne.

King Bhumibol was a symbol of unity in a country rocked by 10 coups during his seven-decade reign, but had been ill for years, making limited public appearances and spending most of his time in the hospital. Crown Prince Maha Vajiralongkorn, 64, doesn't enjoy the same adulation.

"The Thai baht will probably be a little more volatile for a few weeks down the road," said Mr Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. "There are more questions than answers with regards to the political outlook."

The baht has declined 1.4 per cent this week, set for its worst loss since September 2015.

"The uncertainties and political risks have been more or less priced in," Ms Margaret Yang, an analyst at CMC Markets in Singapore, said by phone after the news. "We may still see some panic selling but I don't expect this to last for very long. Eventually smart money will flow in to support the market."

Thailand's SET Index has fallen 6.1 per cent this week, with 30-day volatility on the gauge climbing on Wednesday to the highest level since January. The baht reached the lowest since January and at one stage was heading for its worst week in a decade.

The SET rose 15 per cent in the first nine months of the year, the most among South-east Asia's major gauges after the Jakarta Composite Index. Stocks entered a bull market in July and reached the highest level in 15 months in August as economic growth accelerated and emerging-market assets rallied.

Thailand's banks and the stock exchange will open as usual on Friday.

"We will open as usual unless they subsequently ask us to close," Stock Exchange of Thailand president Kesara Manchusree said late on Thursday by phone from Bangkok.

Equities had also been aided as stimulus measures to help shield the country from China's economic slowdown made the nation's shares a haven for overseas funds. Foreign investors have poured US$3.8 billion into Thai equities this year, the biggest inflow in South-east Asia, according to data compiled by Bloomberg.

"Thailand's economic fundamentals remain unaffected, which should help it to weather this storm," Jingyi Pan, a Singapore-based strategist at IG Asia Pte, said by e-mail before the announcement. "The military government which has overseen the economy during a period of increasing GDP growth, could help to guide the country through the period."

South-east Asia's second-biggest economy may grow as much as 3.5 per cent in 2016 from 3.2 per cent last year on the government's accelerating spending, according to the National Economic and Social Development Board.

Prime Minister Prayuth Chan-Ocha, who took power in a May 2014 military coup, has issued a series of economic stimulus measures valued at more than 645 billion baht since September 2015 to help shore up local demand.