Update 'the power of the baht'
On November 30, I wrote an article on Thailandblog about “the power of the baht". Because developments are going faster than expected, below is a short update of my view on the price development.
Previously, stocks and currencies were my day-to-day business. This does not mean that the undersigned has a monopoly on wisdom, but looks at the market with different eyes.
The political instability appears to be prolonging, causing currency speculators and investors to withdraw their money from Thailand. The result is more supply than demand and a falling price. With a friend I had a small bet that we would see the 45 before Christmas, but alas I should have said with Christmas because on Christmas Day 45,21 was tapped in the evening.
Of course, the Australian, European and US markets are closed on that day. Due to a low turnover, you have a chance of large fluctuations. In my opinion, before Christmas the resistance was 44,30 and it was broken through to then encounter the resistance 44,90, the breakthrough came on December 27 and it is at 45,56 at the time of this writing.
I think that the death of the police officer and the increasing aggression at the demonstrations are partly responsible for this weakening of the Thai baht. I cannot place analysts' comments that it has to do with the phasing out of the US FED program at all, because the US only does this to instill confidence in its own economy, which is quite successful. Thailand has hardly any economic ties with the USA and I wouldn't know why they would support the baht.
Our great friend China only thinks in "barter" trade (goods against goods) and only benefits from a lower baht. The big boy Japan (biggest foreign investor in Thailand) will only receive lower production costs in Thailand due to this fall, so also sees only advantages with a lower exchange rate.
Finally:
If the political unrest continues and the price of rice on the world market continues to fall, I expect a further fall in the Thai baht in the coming months.
Perhaps it is not a bad idea to exchange your euros for bahts at a rate of about 50, because the currency will at some point enter calmer waters and will stabilize and perhaps the buyers will return en masse, partly due to the low stock prices on the stock exchange of Thailand (no offense intended, but the major Thai companies are listed on the Singapore stock exchange).
This is my noncommittal view on the development of the Thai baht and also keep an eye on the euro/US$ ratio (currently 1,38), as I expect a further weakening of the US$ against the euro. Meaningful positive or negative reactions are welcome, but please be well substantiated!
More information:
- Real-time exchange rate Thai Baht-Euro: www.xe.com/
currency converter - Thai Baht-Euro Historical Prices: www.xe.com/
currency charts
Ruud
Note: We don't have to starve in Thailand because the Thai government still owns many millions of tons of rice.
At the time of the previous crisis / flood, etc., the baht was artificially kept high through new loans. Now you simply can't afford it anymore. What you see now is the actual value of the Thai baht. and it will continue to decline in the near future.
Let me put it another way: the money is gone.
Dear Hans,
In the 80s, people invested in shares because of the dividend yield (especially Kon Olie) and a possible rise in the price.
In the 90s, many “new” investors entered the market because of the sharp price rises.
Price/earnings ratios were even above 60 (this means that with a constant profit you would have the price of the share back after 60 years and these shares had no or a very low dividend). There were even stocks with a price/loss ratio (read Versatel, among others).
Since that time, the speculators (read Leeson, among others) have taken over the market and only benefit from substantial ones
price movements in order to collect the highest possible profit or bonus.
If you had invested your entire capital in Kon Olie 30 years ago, you would have been very rich if you had simply held on to the shares. The share gives an annual dividend yield of
approx. 5% pa and I estimate that the share including splits and conversion to euros has become about 5 times, or 9x the investment including the annual dividends.
Now the answer to your question the world stocks, currencies, derivatives and commodities is in the hands of speculators (read Soros, billionaires and the big Banks).
In my opinion, the current policy is being used to lower the baht, but at some point the speculators and investors will come back.
Only the internal problems in Thailand are almost incalculable and then also that political squabble does the country no good. But for the expat it is very pleasant.
I read your piece with great interest.
It is true that I am an absolute layman in that area. I put on the naughty shoes.
And dare I ask you a question.
You say at some point the currency will calm down and stabilize
Maybe the buyers will come back.
Then my thoughts are that the currency will start to recover and slowly come back to its old level. My question
Is such a process approximately predictable in terms of time? For example, can that be a matter of months or will it take years.
Dear Kees,
“Trust comes on foot and goes on horseback”
This is a well-known saying and we are now on the horse, so to speak.
On Friday, the price drop was almost unstoppable.
It hit 45,56 and in evening trading it came back to 45,185.
You saw some support purchases on this Friday (see graph), but one of the reactions hits the nail on the head in my opinion: “the money has run out” to be able to finance large support purchases.
But in the past, 50 was the highest price and I expect that at that time the speculators will start buying the cheap (in euro terms) Thai shares and there will be a demand for the Thai baht and the price will slowly rise.
However, not too many corpses (read corruption and fraud cases) should come out of the closet.
But in the exciting financial world anything is possible. I had not anticipated the December 24 cash crunch in China, but neither did the Chinese themselves.
Finally:
Normally I see the problems half a year in advance. I don't know why, but I think May 2014 could be a good month.
Unfortunately, past results are no guarantee for the future and so is this explanation.
Note: Take a look at the charts over 10 years and you can see how a currency has recovered.
With the QE in the US, an enormous amount of cash dollars was pumped into the economy for a long time, which sought and found returns in Asia. Partly as a result, the Thai and other currencies rose there. Now that QE is being phased out, a large portion of those dollars are returning and new cash is no longer coming to Asia. As a result, currencies in Asia are under pressure and are declining in value due to political actions in the US. QE stands for quantitative easing.
Still, as Ruud rightly said, I think that the tapering of the QE policy is not the main reason.
The rates on the SET50 have been falling for some time and the baht has also been falling for some time. Both go hand in hand. If share prices fall, the foreign investor withdraws his money, but so does if the currency falls. After all, if your share is quoted in baht and the baht drops, you will still lose even if the share in baht increases in value. Reducing QE policy has been in the air for some time, but was only announced this month.
Incidentally, the rates in the US and Europe went through the roof after the QE phase-out was announced and the EUR/USD currency pair is also at its highest point in a long time. So there is a lot of capital flowing towards Europe, which lends the EUR/THB a helping hand, in our case as expats.
Those protests only speed up the game. What they especially dislike in the investment world is uncertainty. You are not really waiting for shares in a company in a country where you don't know what the next government will be and what they will do.
The Thai now gets a taste of its own medicine.
I am responding specifically to the sentence stating that America with the FED would not or would not exert any influence outside the US.
With the QE in the US, an enormous amount of cash dollars was pumped into the economy for a long time, which sought and found returns in Asia and also in shares worldwide. Partly as a result, the Thai and other currencies rose there. Now that QE is being phased out, a large portion of those dollars are returning and less new cash is coming to Asia. As a result, currencies in Asia are under pressure and are declining in value due to political actions in the US. QE stands for quantitative easing.
Currencies are already under pressure and I would not be surprised if stock markets worldwide also suffer from the US monetary policy. Everything done in monetary terms in the US has a huge influence worldwide. People have almost forgotten that the misery we currently have in the EU with the cuts is also due to the US.
Partly thanks to this crisis, I have been working for several weeks to get my Euro on an FCD account.
To exchange in the increasingly weaker THB.
I do this little by little and follow the price, just like with stocks daily.
Yesterday almost 50 for a Euro.
Was during Songkran in April around 36 to 37 .
Now is the time to take advantage of this situation.
As the saying goes, one man's death is another man's bread.
So good advice if you can do it and have the balance for this, and live permanently in Thailand, build up your reserves now.
Jan Beute
Hi Jan,
It is wise to convert your capital in phases. You will soon receive an average price,
because “no phone call is ever made at the highest rate”!
This means that we can determine afterwards what the best moment was.
Good advice!
This is Ruud's opinion, maybe he's right, maybe not. Those who can look into the future always have an advantage. If Ruud works for a BANK, he could be right, or not, because he wants to put us on the wrong track. Start from your own insight and do not use the opinion of third parties, who think they have a monopoly on wisdom.
I too believe that the rate of the Thai baht is being manipulated to kill political opponents. The price in the past 15 months has been unreasonably strong and a very big problem for certain major business groups in Thailand. It appears they are now in control of the manipulation.
Ps Transfer some money to Thailand.
Interesting this contribution. Nice for those who have Euros and can exchange them at a good rate.
But now, whoever has THB, how does he protect himself against inflation and especially against hyperinflation. Various governments print money, USA, Europe, Japan, etc.
Who has advice on how to keep THB stable in value/prosperity in a savings account? A savings account or deposit account gives a limited interest, an interest that is also below the actual inflation.
You already gave the answer yourself, with a savings account you cannot do anything to protect yourself unless the bank adjusts its credit interest to hyperinflation.