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Bulls are back, though temporarily
Market euphoria that sparked the 1
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arket euphoria that sparked the 1.8 per cent appreciation in the dollar/baht exchange rate, a 4-per-cent jump in Thai shares and a spike in the gold price could be short-lived, experts warned.
Though the US Federal Reserve unexpectedly refrained from cutting monetary stimulus, which has spurred demand for emerging-market assets, at its Wednesday meeting, Fed chairman Ben S Bernanke said paring the stimulus could still start this year should data confirm the Fed's basic outlook.
"But, the Fed only postponed its tapering'¦To avoid another rough summer, policymakers in Asia will need to use this brief window to implement structural reforms to put Asian growth on a more sustainable path. That would make for a true bull market," said Frederic Neumann, HSBC's co-head of Asian Economics Research.
Investors cheered on the unexpected move. The Stock Exchange of Thailand index yesterday jumped 49.93 points or 3.47 per cent to 1,489.06, on brisk turnover of 82.7 billion baht. Jakarta surged 4.65 per cent, or 207.48 points, at 4,670.73, Mumbai jumped 3.43 per cent, or 684.48 points, to 20,646.64, and Manila soared 2.81 per cent, or 177.74 points, to 6,511.70.
As spot gold hit US$1,364.42 an ounce in the afternoon in Singapore, local gold prices were adjusted five times yesterday, for a net increase of 450 baht per baht weight. The gold bar price ended the day at 20,000 baht. It could have ended higher but for the baht appreciation.
Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong admitted that inflows should return to Thailand, but said that the central bank should be able to handle it.
As new inflows could lead to a stronger baht, Bank of Thailand Governor Prasarn Trairatvorakul promised close monitoring and readiness to step in, and urged all not to overreact.
"We'll see a short-term adjustment throughout the region... There'll be some limit, though, as the Fed's tapering will take place. It's just a matter of time," Prasarn said.
The Thai baht jumped 1.8 per cent yesterday, the most since January 2007, to 31.1 per dollar at 8.17am. It reached 31.055 earlier, the strongest level since July 26. It moved along with regional peers. The Malaysian ringgit strengthened 2.7 per cent to 3.1477 per US dollar as of 3.08pm. From the Indian rupee to the Philippine peso, the Fed news boosted higher-yielding, riskier currencies in emerging markets. The rally came after heavy selling in August.
Though, looking ahead, all market watchers in Thailand expected this euphoria to end soon. "There is a big rebound in reaction to the Fed," Pareena Phuangsiri, a Bangkok-based analyst at Kasikornbank, told Bloomberg. "I would say it's very dovish. But even though the Fed didn't taper this time, they will do so eventually," she said.
Kamonthan Pornpaisarnvijit, Gold Research Centre director, admitted that there is an upside limit to gold prices, as the tapering is still on the agenda.
HSBC's Neumann noted that the money train would continue for a while. He also foresaw that if the monthly US$85 billion US bond-buying programme is pulled back, liquidity injected by the Bank of Japan should also ease the plunge.
