Fanning the flames of fear
The global economic context is becoming riskier, especially for Thailand, write Post reporters
The recent yuan softening and monetary policy easing by regional central banks are the latest moves stoking fears of an emerging currency war, with Thailand positioned in the middle of the crossfire.
Last raised by former Brazilian finance minister Guido Mantega in 2010, the term “currency war” refers to competitive currency devaluation to gain a trade advantage in terms of export value.
Quantitative easing, a practice to increase money supply in an economy via large-scale asset purchases, and interest rate reductions by major central banks in developed economies were used as a response in the wake of the US subprime financial crisis that started in 2007, then used again during the 2008 global economic crisis.
The yuan’s weakening against the US dollar on Aug 5 sparked fears that the Sino-US trade war would evolve into a full-blown currency war, resembling the global monetary easing trend used to rev up economic growth over a decade ago.
The yuan fell below the 7-per-dollar mark for the first time in more than a decade, leading US President Donald Trump to officially accuse Beijing of being a “currency manipulator”.
While China’s central bank was quick to deny the accusations, the label could pave the way to possible sanctions against China. The last time the US put China on the currency blacklist was in 1994.
“Global central banks are expected to embark on further monetary policy easing to shore up economic growth and make exports more competitive, but the global economy will collapse if the currency war is protracted,” said independent academic Somchai Phagaphasvivat.
WHO HAS THE EDGE?
With the tit-for-tat tariffs by both China and the US and no signs of backing down, the Sino-US trade war is full of depressing repercussions.
Total US tariffs applied to Chinese goods are worth US$250 billion, while total Chinese tariffs on US imports are valued at $110 billion.
Despite sporadic truces between the two largest economies, Mr Trump’s latest threat of imposing a fresh 10% tariff on a further $300 billion in Chinese goods, possibly on Sept 1, is chasing away hopes of an end to the trade dispute.
As tariffs begin to pile up, global trade and economic growth have been experiencing a slowdown and the International Monetary Fund now forecasts global GDP growth of 3.2% in 2019, down from 3.3%.
The US had already stepped up tariff impositions with sanctions against Chinese tech giant Huawei over national security concerns. What transpires next remains a mystery, and opinions are divided over which country has an edge over the other.
In Mr Somchai’s view, the US has an edge over China because higher US tariffs could squash China’s annual GDP growth to below 6%, a rate that Beijing cannot afford with its massive population.
China is also expected to shun selling the dollar and its holdings of US treasury bills, which would have the drawback of devaluing foreign reserves, he said.
Added to the ongoing feud with the US, the prolonged protests in Hong Kong are pressuring Chinese
Thai Insurance Plc (TIC) has set a target for total premiums of 2.3 billion baht this year, driven by a new business model after being amalgamated with Southeast Group (SEG), a holding company controlled by tycoon Charoen Sirivadhanabhakdi.
For the first half, the company reported a net profit of 69 million baht, a turnaround from a net loss of 70-80 million baht in the corresponding period last year, with total premiums received of 1.25 billion from a customer base of 300,000.
“Our customer base is expected to grow to 600,000 this year,” said chairman Somchai Sajjapong. “Net profit is expected to continue growing as profitability has improved after business restructuring with Southeast Life Insurance Plc (SELIC).”
SEG is a holding company controlling assets of SELIC and other insurance companies.
Under the backdoor listing deal struck last year, SEG arranged a conditional voluntary tender offer for TIC’s shares as an alternative for those wanting to exit.
Meanwhile, a holding company, Thai Group Holdings Plc, allocated 730 million shares at a price of 34.24 baht each, worth 25 billion baht in total, to SEG in return for the group’s assets and liabilities.
TIC has now been de-listed from the Stock Exchange of Thailand, with the bourse subsequently granting the listing of SEG on July 31, 2019.
SEG holds 93% of TIC shares after the tender offer.
Earlier, TIC expected the amalgamation to help diversify sources of revenue from non-life insurance to life insurance.
Mr Somchai said the company is still conducting business that doesn’t overlap with SELIC’s. It has restructured its business model in terms of insurance claimants, management processes and operating cost reduction.
Under the model, the company plans to prepare for Thailand’s aged society and spearhead digital technology adoption, since digitisation can help expand the customer base in every segment, Mr Somchai said.
The company also aims to receive more quality insurance premiums, especially for the auto insurance business, through adjustments to insurance premiums according to relevant risks, he said.
For example, trucks and towing heads will have additional insurance premiums based on their risks.
The system will help lower the overall loss ratio to 60% from the current 65% and increase profitability, Mr Somchai said.
TIC plans to increase the portion of non-motor insurance to 40% from the current 30%.
The company’s existing capital base is sufficient for business expansion over the next 3-5 years, Mr Somchai said.