THB: Near-Term Downside On China Risk
USD/THB hit a
multi-year high of 34.058 yesterday, a high not seen since Sep 2009. The pair
was hit by waning global risk appetite following the Chinese stock market rout.
The Shanghai Composite Index had tumbled as much as 8.2% yesterday – the most
since 2007 before closing 5.9% lower. Also not helping was on-going concerns
over Grexit with the Sunday deadline looming for Greece to submit its proposals
to its creditors.
In the earlier
market tantrums, Indonesia and Malaysia had bored the brunt of the sell-off in
assets, particularly government debt, but the focus is now on Thai assets.
Yesterday, foreign funds bought a net THB0.56bn in government debt but this was
completely offset by the net THB2.32bn sell-off in equities, which weighed
heavily on the THB.
This is not
surprising given the sluggish economic growth so far with no marked recovery in
exports or private consumptions and investments or accelerated government
disbursements that is likely to weigh on corporate earnings 2H15. The stock
market rout in China highlights risks of the economic slowdown there on
Thailand. China remains an important market for Thailand with exports to
China representing 11% of total exports and Chinese tourists accounting for 18%
of tourism revenue. This should add to the already lackluster macroeconomic
environment and suggest further downside pressure on the Thai economy in the
quarters ahead.
Momentum and stochastics indicators
continue to point to further upside. Next level to watch beyond the break of
34-psychological resistance puts 34.50 in focus.
Weekly
Chart: USDTHB – Upside Bias Remains Intact
Source: Bloomberg, Maybank FX Research
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