Thailand rises above G7 trade spat
The trade spat between the US and its key allies along with Argentina’s financial crisis have led to capital outflows from emerging market economies, but Thailand’s economic fundamentals have helped mitigate such sales, say analysts.
Despite the IMF’s agreement to provide financial assistance, Argentina’s struggling economy, exacerbated by high inflation, has fuelled concerns that such a crisis could spill over to other emerging economies such as Turkey, India and Indonesia, said Prakit Sirivattanaket, vice-president at Kasikorn Securities.
Such fear has sparked heavy equity sales in emerging market economies by foreign investors, said Mr Prakit.
The G7 meeting in Canada did not shore up investor confidence as disagreements on trade between the US and its allies exacerbated US President Donald Trump’s personal attack on Canadian Prime Minister Justin Trudeau have fanned growing concerns over the global trade war, he said.
For Thailand’s stock market, foreign investors sold shares worth 130 billion baht for the first five months and continue to be net sellers of equities valued at 7-8 billion in June, said Kasikorn Securities.
But capital outflows from Thailand are lower than emerging market peers as the country’s economic fundamentals remain sound and the domestic economic growth trajectory further adds to a positive outlook, said Mr Prakit.
Thailand’s GDP growth is projected at 4-5%, with a low interest rate and inflation, a strong trade balance and a current account surplus, helping the country’s economy become one of the strongest among its emerging market peers, he said.
“Funds are still recording outflows from the Thai equity market, but not as much as other emerging economies, which are experiencing currency depreciation, low foreign reserves and a high inflation high,” said Mr Prakit.
Issues warranting further monitoring this week include the meeting between Mr Trump and North Korean leader Kim Jong-un in Singapore, the US Federal Reserve’s interest rate decision and dot plot, and the European Central Bank’s signal on its monetary stimulus programme, he said.
Poranee Thongyen, executive vice-president at Asia Plus Securities, said the G7 summit outcome confirms the outlook for harsher trade protectionism, reflected by how Mr Trump had left in the middle of the summit and rejected a joint communique.
The US could proceed with additional protectionist trade measures against global partners after imposing a 25% steel and 10% aluminium tariff on imports from the EU, Canada and Mexico, said Mrs Poranee.
Market participants have to keep a close watch this Friday on how Washington will unveil the final list of Chinese products targeted for tariffs, she said.