BoT: Bourse outflows to be expected

Bank advises public to carefully manage risk

Ongoing fund outflows from the Thai stock market are in line with the Bank of Thailand’s expectations and the phenomenon is commonly seen in emerging markets, says the central bank chief.

“In recent periods we have seen more capital flowing out of emerging markets when the likelihood of a Federal Reserve rate hike increases as a result of improving economic conditions in the US,” said Bank of Thailand governor Veerathai Santiprabhob.

The US central bank kept interest rates unchanged last Wednesday, while emphasising the strength of the labour market as a sign to indicate it is still on track for two more rate increases this year. Fed officials will hold the next policy meeting on June 13-14.

Mr Veerathai said the global financial market has become more volatile since late last year and investors have been changing their risk-taking behaviour rapidly.

“The central bank advised the public not to be too complacent in managing financial risk as volatility caused by external factors will be stronger in the future,” he said.

Investors were net buyers of 2.44 billion baht worth of Thai shares yesterday, and are net buyers of 285 million baht this month.

Roong Mallikamas, senior director of the Bank of Thailand’s financial markets department, said the outflows in the Thai bourse and smaller inflows in the Thai bond market are not a surprise to the central bank.

“The outflows are partly because of the rising odds of a Fed rate hike at the June meeting, the improvement in the US economy and the eased geopolitical tension in the Korean peninsula adding to the possibility of a rate increase,” said Mrs Roong.

She said the Bank of Thailand’s measure to curb speculation by tapering its short-term bond issuance will likely lead to capital outflows this month.

“We expected inflows would be lower in May when we decided to extend the measure,” said Mrs Roong.

The central bank announced earlier it will continue to cut its short-dated bonds worth 80 billion baht in May as a way to curb baht speculation as foreign investors consider the currency a safe haven.

Kobsidthi Silpachai, head of capital markets research at Kasikornbank, said the baht’s depreciation is expected to continue throughout this month, alleviating the central bank’s burden of managing the exchange rate.

“Monetary policy can only manage cyclical shocks, but the baht’s strong value is because of the structural issue of low private investment, resulting from low imports and a high current account surplus,” he said, adding the central bank measure sends the right message but does not weaken the baht in the long term.