More bang for your baht!

Thai Baht May Decline on Signs Economy Slowing, Survey Shows

June 12 (Bloomberg) -- The Thai baht may decline this week on signs the economy is slowing, prompting global investors to exit from the nation's shares, a Bloomberg News survey shows.

Among 11 investors, strategists and traders surveyed from Singapore to Seoul on June 8-9, seven suggested selling the baht against the dollar this week. Two advised buying it and two had a hold recommendation.

The baht in June has extended the worst monthly drop in almost a year in May as stock exchange data show investors sold equities for the past 19 days in 20. Reports last week showed consumer confidence fell in May to the lowest in four years and the government's economic advisory agency cut its growth forecast after a constitutional court annulled April's election result because it was boycotted by opposition parties.

``We've got a weak economy coupled with sentiment to sell stocks and that's weighing on the currency,'' said Joseph Yap, a senior currency analyst at CFC Seymour Ltd. in Hong Kong. ``We've also got a lame-duck government who aren't doing anything apart from worrying if they'll have a job tomorrow.''

The Thai baht finished the week at 38.42 per dollar at 5 p.m. in Bangkok June 9, close to its lowest in two weeks, according to data compiled by Bloomberg. It may drop to 39 this week, a level not seen since March, said Yap.

The University of the Thai Chamber of Commerce's index, published June 8, fell to 75.5 from 76.7 in April in a survey of 2,244 respondents nationwide, on higher fuel prices and the political stalemate will damp growth. Crude oil has climbed 15 percent this year.

A Bloomberg News survey published June 5 correctly predicted the Philippine peso would slip in the week through June 9. The currency fell 0.7 percent and touched 53.25 on June 8, the lowest in more than five months.

Snap Election

A snap election April 2 was called by Prime Minister Thaksin Shinawatra in the face of mounting criticism of his leadership, including grievances over his family's tax-free sale of its stake in telecommunications group Shin Corp. to investors led by Singapore's Temasek Holdings Pte.

The elections, which failed to fill all the seats in Parliament, were annulled for breaching the constitution. A new poll may be held Oct. 15.

The National Economic and Social Development Board June 6 cut its 2006 growth forecast to between 4.2 percent and 4.9 percent, from a 4.5 percent to 5.5 percent range. ABN Amro Bank NV cut its forecast for the economy's expansion in 2007 the same day and UBS AG cut its 2006 prediction.

`Investors Will Return'

Losses in the currency may be limited by speculation investors will buy government bonds to take advantage of higher yields after the central bank raised interest rates June 7 for the ninth time, to 5 percent to curb price increases.

Inflation unexpectedly accelerated in May to a seven-month high of 6.2 percent because of costlier fuel, the government said June 1.

The yield on the Thai government 10-year bond has climbed 10 basis points this year to 5.50 percent after averaging 4.94 percent last year.

``Investors will return, it's just a case of when,'' said Hong Kong-based Sebastien Barbe, a senior economist at Calyon, the investment banking arm of France's Credit Agricole SA. ``We're getting closer to attractive levels to get back into Asian currencies.''

Thailand's stock market, at its lowest in six months, has slumped in line with other emerging markets on concern rising inflation will lead to higher interest rates in the U.S. and stifle global economic growth, damping demand for the nation's exports, which make up about half of Thailand's gross domestic product.

`Major Issue'

Fed Governor Donald Kohn June 8 said a recent increase in gauges of inflation is ``troubling'' and raises a warning flag for the U.S. central bank, even as the economy slows. His comments follow those June 5 from Fed Chairman Ben S. Bernanke, who said price increases were too fast for his comfort.

``There are flows back to the U.S.,'' said Uwe Parpart, head of fixed income and currency research for Asia at Cantor Fitzgerald & Co. in Hong Kong. ``Risk aversion has become a major issue.''

The latest survey also predicted declines for other Asian currencies, including the South Korean won, Taiwan dollar and Indonesian rupiah.

U.S. consumer prices may have climbed 0.4 percent in May, according to the forecast of 27 economists surveyed by Bloomberg News, making it the fifth monthly increase in prices. It averaged 0.2 percent a month in 2005. The government report is due June 14.

``High oil prices will continue to add pressure to inflation, economic growth and the current account deficit,'' said Deputy Central Bank Governor Bandid Nijathaworn June 8. ``Exports may slow in the second half from the first half on slowing global growth, especially in the U.S.''

BUY SELL HOLD
Indonesia Rupiah 2 7 2
Taiwan Dollar 2 7 2
Philippine Peso 2 6 3
South Korean Won 2 9 X
Thai Baht 2 7 2
Singapore Dollar 3 3 5
Malaysian Ringgit 3 3 5


To contact the reporter on this story:
Jake Lee in Hong Kong jlee127@bloomberg.net

Last Updated: June 11, 2006 12:09 EDT