Appetite for Thai bonds leads to blues for policymakers

BANGKOK • Thailand's popularity among bond investors is creating a headache for policymakers counting on exports and tourism to drive growth.

Some US$2.2 billion (S$3.1 billion) of foreign money has flowed into the nation's debt this year, making it the top destination among South-east Asia's emerging markets.

That is buoying the baht, the region's best developing-nation performer in 2017, and spurring speculation the currency will cope with rising interest rates in the United States better than its peers.

It is also causing problems for policymakers trying to revive an economy whose growth has slowed for the last two quarters.

Bank of Thailand governor Veerathai Santiprabhob said last month that foreigners saw the country as a "safe haven" and the baht's strength was not helping the economy.

"It's an export-oriented economy, and if their currency is resilient while others are weakening, it's negative for them," said Mizuho Bank trader Masakatsu Fukaya.

  • $3.1b

    Foreign money that has flowed into Thai debt this year, making it the top destination among South-east Asia's emerging markets.

Strong macroeconomic fundamentals, including a current account surplus of more than 10 per cent of gross domestic product and hefty foreign exchange reserves, have helped lure foreign funds to Thai debt, but the country has also benefited as other South-east Asian markets lost their lustre.

Investors have turned cautious on Malaysia due to rule changes on forwards late last year that deterred currency hedging, while foreign funds already have big positions in Indonesian debt, said Mr Vincent Tsui, an economist at AllianceBernstein in Hong Kong.  The travails of President Rodrigo Duterte have damped demand for Philippine assets.

Foreigners own just 8.4 per cent of Thai bonds, according to a Bloomberg calculation using central bank figures, compared with 38 per cent in Indonesia and 31 per cent in Malaysia. The demand for Thai notes has helped drive a 2.2 per cent gain in the baht against the US dollar this year.

Thailand's outsized external surplus makes the baht a one-way appreciation bet, according to Mr Tim Condon, head of Asia research at ING Groep in Singapore. The baht will end the year at 34 per US dollar, he said in a Feb 28 note, implying a 3.1 per cent gain from last Friday's level.

If the currency does strengthen that much, it will make it difficult for Thailand to sustain a recovery in exports that started in the middle of last year.


A version of this article appeared in the print edition of The Straits Times on March 07, 2017, with the headline 'Appetite for Thai bonds leads to blues for policymakers'. Print Edition | Subscribe