Fund inflow expected to persist in Q2

The rising baht is expected to continue attracting offshore funds to the Thai bond market throughout the second quarter, says a Thai Bond Market Association official.

TBMA executive vice-president Ariya Tiranaprakij said the baht’s relative stability compared with other currencies in emerging markets lends support to the local currency.

Since early this year, around 90 billion baht in overseas funds has poured into the Thai bond market, mostly allocated to government bonds with maturity longer than one year, she said.

“It implies that the funds are not focused only on short-term investments or currency speculation,” said Ms Ariya.

The Bank of Thailand said last week that it was still closely monitoring offshore inflows after the baht appreciated to just shy of 34 to the US dollar, marking the highest level in nearly two years.

From May 24-26, the baht gained 0.97% against the US dollar, outpacing regional peers such as the Malaysian ringgit (+0.56%), the South Korean won (+0.54%), the Indian rupee (+0.53%), the Philippine peso (-0.49%), the Singaporean dollar (+0.46%) and the Chinese yuan (+0.41%).

The baht is the best-performing currency in Asia, gaining 4.7% against the greenback so far this year, prompting the central bank to cut the volume of its short-dated bonds from April onwards, as such inflows could hinder nascent export recovery.

Benjarong Suwankiri, head of TMB Analytics, a research unit of TMB Bank, said funds continue to flow into the Thai bond market as foreign investors speculate that the baht’s appreciation will continue, and the baht is considered a safe haven due to substantial foreign reserves.

However, the baht appreciation does not bode good news for the export sector, which is an important for driving economic growth, he said, noting that the market expects the Bank of Thailand will step in to curb fund flows, but very cautiously.

Even though the US Federal Reserve is expected to raise the policy rate at this month’s meeting before making another increase later this year, Thai bonds remain attractive as foreign investors can reap a double windfall from coupon and currency gains, he said.

Foreign investors have yanked 1.51 billion baht out of the Thai stock market, lowering their net buy to 12.1 billion year-to-date.