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In the highly volatile financial world it seems like anything could happen this year, and investors flocking to Thai assets isn’t as far-fetched as it may at first appear.
That’s what one Bank of Thailand governor believes is happening though; that many foreign investors are pumping money into Thai assets in the short term. There are a few reasons why this may be good financial advice for individuals and businesses, and one area it will definitely affect is forex trading in Thailand.
Thai reserves had strengthened from 2007 until 2013 when, even though they started to drop a little bit, they remained strong.
At one point they represented the 12th highest foreign reserves in the world and made the Thai baht and assets an appealing safe option for investors looking to avoid the volatility elsewhere.
However, as of January 27th 2017, Thailand’s treasury reserves have fallen by 85% to Bt74.9 billion from Bt441.3 billion the year before. While the government claims the reserves are still sufficient, that may not be enough to convince other investors in both the currency and assets.
Increased Money Flow
A strengthening in Thai assets from foreign investment, no matter how minor it may be at the moment, would see an increase in money flowing into the country. This would have a positive effect in strengthening the Thai baht, as many investors would need to convert to the currency in order to invest and buy stocks and shares.
As the forex market works in pairs, with the Thai baht possibly posed to grow in value it would mean others would fall in retaliation.
It could see the baht as a safe haven currency, though possibly only for the short term. On the other hand, the change in money flow is likely to increase volatility and risk to the currency as well.
The Trump Effect
Ever since Donald Trump was elected as the newest President of the USA, many Asian currencies have experienced a boost, including the Thai baht. At the end of February it reached a four-month high of 34.83 USD/THB as uncertainties surrounding Trump’s policies dragged the US dollar down.
In turn, this has provided a boost for many Thai assets that have grown in value alongside the currency.
As long as some level of uncertainty and volatility remains surrounding President Trump and the US dollar, then both of these can be expected to remain at their current levels or experience further growth.
Other Existing Factors
Factors such as manufacturing output, unemployment levels, interest rates and more will still affect the forex market in Thailand. Recent manufacturing data failed to meet expectations and saw the Thai baht fall in retaliation, for example.
These factors and more have put off some investors, with Shell recently its stake in a Thailand gas field, for example. The short term may be positive but those looking to the long term for investments in Thai assets appear to be less enthusiastic.
Future of the Thai Baht
GDP growth for Thailand in 2016 was 3.2% and growth of 3.3% is predicted for 2017, pointing towards a stable, growing economy for the coming year.
For the Thai baht, a continuously growing economy should see its value rise as well, and could well see the predicted strengthening of Thai assets ring true this year too.
Thai assets growing in value will work in tandem with the currency, as when one strengthens the other is likely to follow.
So unless there is a big drop in investment in Thai assets in the next few months, then the currency is unlikely to experience a major shift in value in the near future.