Significant Issues U Shouldn't Miss

Hello,
Written on Jun 3, 2013

While I was away, there were some significant issues being announced which I shouldn’t miss to mark. Firstly, on May 29, the MPC finally decided to cut its policy rate by 25 bps, though it was in line with the street, the market wasn’t impressed and twisted down relentlessly and subsequently. Why? Because this time was not just a cut. The BOT also came up with the two endorsed regulations related to capital outflows and inflows (subjected for MOF approval), e.g. requirement to do fully-hedge, liberalizing capital outflows up to USD50 million. This is the felon to push market sentiment in flimsy mood and partially stop capital inflows as it has signaled to make things difficult for foreigners if they want to bring more money to Thailand. In addition, export numbers in April, which was initially declared at +10.52%, was revised down to merely +2.89%, due mainly to incorrect figures from Hong Kong’s exports. Thailand’s Manufacturing Production Index (MPI) in April also nosedived to its lowest level in 16 months to 159.16, a reduction by 3.8%, owing to the baht appreciation. In a nutshell, all these are the risks that could threaten the Thai economy going forwards, apart from costly valuation whilst I mentioned to you before (17% premiums of P/E to the seven-year average). That’s why the central bank left the future course of policy action open ended in their latest statement, pinpointing that “the MPC will closely monitor development of the Thai economy, financial stability risks as well as capital flow situation, and stand ready to take appropriate action as warranted”.

Well, to make it clearer, let’s see the numbers. Thailand last week published net foreign outflows of USD488 million in equities, making it the top note weekly net outflows since Sept 2011. Furthermore, in the Thai bond market, offshore investors turned new sellers of USD1 billion in May, ending a record of 19 consecutive months of net buying. So you can see significant differences here. The exodus of foreign investors could be a sphere eclipsing upside of the SET index going forward. I have been warning you since the SET was at high of 1648 (on May 22). Deserving notice that Thailand is the only country in TIP which has remained net foreign outflows in equities since the onset of this year (USD738 million). Indonesia +USD1236 million, whereas the Philippines +USD1475 million.