Bond market sees huge influx
Massive net foreign inflows into the local bond market have been detected this month as foreign investors shift their appetite to low-risk assets in search of combined currency and yield gains, says the Thai Bond Market Association (TBMA).
Net foreign capital inflows for the month registered 100 billion baht as of Sept 18, with year-to-date inflows logged at 240 billion baht, according to the TBMA.
The influx of foreign capital into the domestic bond market is due to foreign investors’ positive view of Thailand’s economic outlook, while baht appreciation is an investment gain in terms of foreign exchange, said TBMA executive vice-president Ariya Tiranaprakij.
“We don’t think that the [foreign] fund inflow into the Thai bond market is hot money, as 82% is invested in long-term bonds,” Ms Ariya said.
Bond holdings by foreign investors total 860 billion baht, representing 10% of total outstanding bond holdings, she said.
According to Ms Ariya, investors could have received an 8-9% return since the start of the year, with the baht appreciating 8% against the US dollar and long-term bond yields of 1-2%.
Trading in the local bond market remains active; corporate bond issuance reached 550 billion baht as of Sept 18, close to this year’s forecast of 600 billion, Ms Ariya said. Corporate bond issuance totalled 800 billion baht last year.
Ms Ariya said the Interest Rate Expectation Index in September is at 50, implying that the Bank of Thailand’s Monetary Policy Committee will keep its policy rate at 1.5% on the assumption that inflation will remain low and the Thai economy will gradually recover.
Meanwhile, net foreign inflows moving into t he Stock Exchange of Thailand in September stand at 19 billion baht, with year-to-date inflows recorded at 24 billion baht, said SET executive vicepresident Santi Kiranand.
The SET remains a laggard market in the region because other bourses are up by double digits this year, Mr Santi said.
He said the Investor Confidence Index for the next three months, conducted by the Federation of Thai Capital Market Organizations, stands at 124.13.
“Investors see the stock market as bullish for the first time in seven months,” Mr Santi said. “The primary factor contributing to this positive outlook is continued economic recovery in Thailand.”
The tourism and leisure sector is still drawing the most investor interest, followed by banking. In contrast, investors are least excited about the agri-business sector, which contracted for the first time in eight months, as well as media and publishing.
Negative factors putting a drag on investor confidence include the risk of international conflicts and policy changes in the US with regard to a reduction in the US Federal Reserve’s balance sheet and additional interest rate hikes, Mr Santi said.
Oranuch Apisaksirikul, chairwoman of the Thai Listed Companies Association, said the Thai economy expanded significantly at 3.7% year-on-year i n the second quarter, the highest rate in four years, and economic growth is expected to continue as private investment heats up and crop prices rise.
But the key factors driving this year’s economic growth are infrastructure megaprojects, exports and tourism, Ms Oranuch said.
The baht is expected t o weaken over the next few months on expectations of a rate hike by the Fed. But the local currency’s value is likely to remain strong compared with regional peers on the back of Thailand’s current account surplus and the trade balance surplus registered in the first half.
In related news, the chief executives of SET- and MAI-listed companies hold negative views of Thailand’s economic outlook and listed-firm revenue, due to a slowerthan-expected recovery in consumer purchasing power, domestic political uncertainty and high household debt, according to an SET survey.