Global liquidity sloshes into Thailand
26 Oct 2012
By the time global quantitative easing gets to smaller emerging markets in Asia, it is often more of a gentle wave than a giant tsunami. However, even small effects can move regional markets.
Recent global softening was reflected belatedly in Thailand when Monetary Policy Committee cut its policy rate by 25 basis points to 2.75% late last week, following a 5-2 vote.
“The rate cut came a bit as a surprise to me," says Alex Klein Tank of Civetta Capital; "though short-term positive for the equity market in particular real estate, infrastructure and consumption stocks. And short-term negative for Thai banks with regards to their net interest margins, but long term positive for funding costs.’ He adds the leading Thai bank stocks fell from 1% to 2.5% as soon as the move was announced: “I expect in 2013 rate hikes 50bps to 75 bps, so the reason behind this cut is not really clear to me, as no further need for easing has been indicated by the MPC.”
It was a surprise to nearly all market analysts, who were not expecting any changes, because the MPC had previously said there existed conditions of strong domestic consumption and credit growth.
“QE3 and unlimited ECB support is great! They pour the money in over there, and it comes squirting out in all the emerging markets,’ says Doug Barnett, the Managing Director of Quest Thai Ltd, a Thai specialist fund management company based in Ploenchit Road, Bangkok. “The central bank’s interest rate cut throws more gasoline on the fire! It is excellent for stocks.”
It was good for stocks which have moved up since, but the index only moving by 1%. Not a big move, but as they say in Thailand, “Garm kee dee kwar garm todt” (Its better to hold a turd than a fart). Looking at quantitative easing more broadly, it does seem that each fresh measure has an incrementally smaller positive market effect than the one preceding it.
The lower interest rates will continue to pull down returns on new fixed income investments. Thailand’s Government Pension Fund has expressed a desire that there will be no more rate cuts this year. Their investment portfolio totals THB580bn ($19bn), 60% of which is in government bonds which have a 3% return, 10% in global fixed income, with 5-6% return, and the remainder split equally between Thai and global equities.
Author: Simon Osborne