QE3 to infinity

The Finance Ministry has come up with measures to counteract the possibility of a too-large inflow of short-term funds after the Fed announced yesterday that it would purchase mortgage-backed securities worth US$40 billion (Bt1.23 trillion) per month. It will also purchase other long-term securities worth $85 billion per month until the 8.1 per cent level of unemployment in the US drops to a desired level. 

The Stock Exchange of Thailand Index yesterday closed at 1,276.12 points, reaching a 16-year high, increasing 18.43 points or 1.47 per cent from the previous day. Trading volume jumped to Bt57.21 billion, a 13-month high. Big market cap shares such as PTT, Bangkok Bank and PTT Global Chemical rose significantly. The surge pushed SET’s market capitalisation past Bt10 trillion, SET president Charamporn Jotikasthira said.

“The market will be highly volatile for the rest of the year as policy-makers of major economies implement new measures. Long-term investors should monitor whether shares prices exceed their fundamental values, since the SET rise this time has been driven by capital inflows from abroad,” he warned. Asian stocks rose in tandem.

Veerathai Santiprabhob, chief strategy officer of the SET, said that “Asia is likely to benefit from the capital inflows, in particular Asean and Thailand, but what we have to watch closely is the possibility of too much inflow, which could drive asset prices up beyond their fundamental values, leading to a bubble.”

The baht appreciated against the US dollar yesterday, trading at 31.01-31.03 per dollar when the market opened and closing at 30.75-30.77. The trading level of 30.75 seen during the day marked a six-month high, said Thiti Tantikulanan, head of the capital market business division of Kasikornbank. He predicted that the US dollar would further weaken to about Bt30.50 within a month. He said that bond yields increased slightly to 0.3 per cent, while the gold price increased $30-$40 per ounce in Europe since the market has already priced in the US quantitative easing (QE).

Usara Wilaipich, senior economist at Standard Chartered Bank (Thailand) said the baht will stabilise at around 31.10 to the dollar at the end of this year, adding that it had risen to the Bt30.80 level now due to the short-term impact of QE. 

Kittiratt Na-Ranong, deputy prime minister and finance minister, reacting to the global development, said: “Obviously it’s a positive impact because the whole world has been expecting the QE. I believe that it’s good that it has come out this early, this soon, because the last thing the world wants is something too little too late.”

He expressed concerned that the inflow would cause the baht to appreciate to a level that would adversely affect exports.

Areepong Boocha-oom, permanent secretary for finance, said the ministry is prepared to take steps to prevent greater short-term inflows that could destabilise economy.

Wasin Saiyawan, head of the financial markets division of Siam Commercial Bank (SCB), said large capital inflows may end up in the bond market, driving down bond yields.

Singhachai Boonyayoyin, the senior director of the Bank of Thailand’s financial markets department, said the baht rose 0.6 per cent immediately after the QE. However, he said that so far exporters had adjusted very well to exchange movements.

The Malaysian ringgit led the currency rises, gaining 1 per cent from the day before. Taiwan’s dollar was up 0.7 per cent, the Singapore dollar increased 0.5 per cent and the Philippine peso rose 0.4 per cent. 

Chitti Tangsithipakdee, president of the Gold Trading Association said the gold price increased more than expected due to the large scale of QE. The price rose $100 to $1,750 per ounce in Asia, compared to an increase of $40 per ounce in Europe.

Ariya Tiranaprakij, vice president of the Thai Bond Market Association, said due to the latest QE, foreign investors have switched their investments from short-term bonds to longer-term 5-, 7- and 10-year instruments, resulting in a drop in bond yields by about 0.05 -0.1 percentage points (as bond prices rose). This year foreign investors’ holding of Thai bonds have jumped 61.24 per cent from last year to Bt677.20 billion, accounting for 8.2 per cent of the Thai bond market by value. “It is good for the country as the government plans to raise Bt525 billion from the bond market to finance public investment,” she said.