Baht Has Worst Monthly Fall in Almost 10 Years on Protests

[Mid]

Baht Has Worst Monthly Fall in Almost 10 Years on Protests
Yumi Teso
Jan 31, 2011

Thailand’s baht completed its biggest monthly slide since March 2001 on speculation global funds will trim holdings as nationalists block a Bangkok street to pressure the government in a border dispute with Cambodia.

The currency dropped to its weakest level since September after overseas investors sold $81 million more Thai stocks than they bought last week, taking net sales this month to $904 million, according to exchange data. Political turmoil in Egypt also weighed on the baht, spurring investor appetite for safe- haven assets. The 10 most actively-traded currencies in Asia excluding the yen declined versus the dollar today.

“With the unrest in Egypt, investors don’t want to take risks, which increases demand for safer assets including the dollar,” said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo. The protests in Bangkok were also adding to selling pressure on the Thai currency in the short term, he said.

The baht slumped 3.5 percent this month to 31.06 per dollar as of 3:26 p.m. in Bangkok, according to data compiled by Bloomberg. The currency, unchanged from Jan. 28, touched 31.21, the weakest level since Sept. 8.

The People’s Alliance for Democracy, which seized Bangkok’s airports 26 months ago, is demanding that Thailand drop out of the United Nations’ World Heritage Committee, cancel a 2000 agreement with Cambodia on border negotiations and is urging Cambodians to withdraw from disputed border areas. In Egypt, protesters calling for the resignation of President Hosni Mubarak continued to defy a curfew.

Swaps, Bonds

The onshore interest rate swap advanced this month and government bonds dropped after Bank of Thailand Governor Prasarn Trairatvorakul said on Jan. 26 the bank needs to boost borrowing costs again to restrain accelerating inflation. There is a possibility that core inflation, which excludes fresh food and fuel, “will exceed the top end of the central bank’s target” of 3 percent, Assistant Governor Paiboon Kittisrikangwan said Jan. 21.

The yield on the 3.125 percent debt due December 2015 jumped 19 basis points in January and was little changed from the end of last week at 3.41 percent. A basis point is 0.01 percentage point.

The one-year swap, the fixed cost needed to receive a floating payment, increased 2.5 basis points this month to 1.85 percent. It fell 4.5 basis points from Jan. 28.

bloomberg.com

[drawp]

Baht falls for protests in other countries, but protests and slaughter in Bangkok keeps it level, if not makes it stronger.. strange.

[the dogcatcher]

Wake me up when it falls 30% against the pound.

[Butterfly]

time to do a transfer ?

[FarangRed]

Think so, which way you think boss?

[Thaihome]

So, you have serious protest in Egypt which as caused investors to flock to safe US instruments, the BOT has raised interest rates in fear of inflation, the SET has been hit with serious profit taking, and yet Bloomberg says the drop in the baht is mainly due fears caused by a PAD demonstration of less then 5,000 PAD blocking one street in Bangkok.

It ignores the fact that during the UDD protests and riots, the SET and baht continued to strengthen but now with a very minor protest it is falling.

Interesting take but not much of an actual financial analysis.
TH

[Butterfly]

there is a strong inflation fear for emerging economies in Asia,

Brazil is also hit, they expect inflation to become a serious a problem before year end

Inflation put back the balance in the Real Exchange Rate which means fluctuations in the Nominal Exchange Rate or Spot Rate

if Thailand has an expected of Inflation of 7% for the year assuming the US doesn't have any change in inflation, we should see the THB go down by about 6% against the USD or about 32

[sabang]

fears caused by a PAD demonstration

Look what happened to the SET during previous PAD protests though- it plummeted. As you point out, it didn't much during the much larger (albeit arguably less economically destructive) UDD protests.

The political risk premium carried by the Bht & SET is hard to quantify right now, thats for sure. How will investors react if there is another coup? Given the obvious fact I am resolutely opposed to military involvement in, and domination of, politics it would be tempting to 'talk up my book' and state that they would both plummet. But even that is uncertain actually. With the chaotic 'no one on charge' situation currently, it might just be that investors would react positively to the perception of stability- but that would assume that the next military Junta or military formed government is considerably less inept and/or more representative than has been the case over the last half decade. I certainly have my doubts about that, given that the overriding (seemingly, sole) emphasis is on keeping certain parties away from the centres of power, rather than any substantive considerations of competent policy and political representation.

For hints on where the Thai capital markets may be heading, I personally would be more interested to see the net activities of sizable local, rather than foreign, investors. That Thailand warrants a considerable political risk premium is a given.