Maybank FX Note: THB: Near-Term Downside On China Risk - 9 July 2015

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