Baht strengthening: The winners & the losers

With baht appreciation over the last year, revenue & expenses in dollars or baht is key factor for Thai businesses winning or losing from appreciation.

EXCHANGE RATE & ECONOMY

Baht strengthening: The winners & the losers

8/06/2017
Nuntawun Polkuamdee

Agriculture, electronics, and food and drink have been hit hardest by the baht's 6% year-to-date appreciation.

The stronger than expected baht hurt exporters which earn most of their income in US dollars and have mostly expenses that they must pay in baht (baht denominated expenses). One example is the agribusiness company Sri Trang Agro Industry Plc.

Exporters with large dollar expenses benefit from the baht's rise. The company Thai Food Group Plc is an example of this. 

Most exporters, including those that make parts and ship agriculture food products, will lose about 5% in profit for every additional baht the dollar loses in its exchange rate.

This is according to Porranee Thongyen, head of research at Asia Plus Securities (ASP).

BAHT REACHES HIGHEST IN TWO YEARS AFTER YEAR-LONG APPRECIATION 

The baht has been one of the best performing currencies in the region, meaning that the baht has risen, strengthened or appreciated more than most.

It has been appreciating since 2016, and it is currently trading at 33.96 to the dollar, the highest in almost two years.

BAHT APPRECIATION GREATER THAN ASEAN NEIGHBOURS

Baht appreciation is especially evident when compared with other Southeast Asian (ASEAN) countries (ASEAN counterparts).

Indonesia's rupiah has only appreciated 1.4%.

The Philippine peso has remained flat with zero appreciation.

CHINESE CURRENCY: ONLY SLIGHT STRENGTHENING

The Chinese yuan has strengthened only slightly, from 6.864 to 6.809 to the dollar on May 31.

This change is largely the result of the Chinese government announcing it will take measures to strengthen the Chinese currency following US pressure.

LIKELY FUTURE BAHT SCENARIOS

If the Thai currency continues to strengthen at its current rate, in ASP's estimation it will average around 34.50 to the dollar for the year, which should not depress exporters' 2017 earnings and fair values significantly...

...Mongkol Puangpatra, head analyst at KTB Securities, expects the baht will continue appreciating in the next few months as the US currency is likely to remain weak because of President Trump's economic measures.

"We expect the baht to fall by the fourth quarter," he said, adding the baht in the next two months is expected to trade in a range of 33.80-34.50 to the dollar.

BOND MARKET

Mr Porranee said the baht's strength has been largely due to the influx of funds into Thailand's bond market.

Net buying in the bond market this year is 135 billion baht or US$3.97 billion, down 26% from the same period last year, and quite low compared with the 365-billion-baht balance in 2016.

Recently, Indonesia has faced net selling. As in Thailand, foreigners have been switching between net buying and selling in the Philippines.

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