The portrait of Thai King Maha Vajiralongkorn is displayed on assorted baht banknotes in an arranged photograph in Bangkok, Thailand. (Photographer: Brent Lewin/Bloomberg)

Chinese Money Expected to Revive Thai Baht at Ringgit's Expense

(Bloomberg) -- A tide of money from China is likely to lift the Thai baht back up after it went from first to one of the worst among Asia’s currencies.

The test case here is how it goes against Malaysia’s ringgit. While the baht dropped last month versus the ringgit by the most in almost two years, flows from China are likely to favor Thailand in the coming months. Bangkok is looking to China to help finance a 1.7 trillion baht ($54 billion) development plan, while Malaysia’s $20 billion rail project with China still hangs in the balance. Coupled with returning tourists, that boosts Thailand’s growth outlook just as Malaysia’s weak financial profile keeps investors on tenterhooks amid rising external uncertainties.

“Malaysia remains a compelling proposition for Chinese investments given the geographical importance,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. “But with Thailand’s East Economic Corridor resonating with China’s investment plans, the allure of Thailand looks more accentuated for the time being.”

The baht weakened 0.5 percent against the dollar this month as Thailand’s general election slated on March 24 raises the risk of potential disruptions to an economy that the World Bank forecasts will expand less than 4 percent through 2021, among the weakest in Asia. The baht’s decline built on a 0.8 percent loss in February, when the ringgit registered a gain of 0.7 percent. That pared the Thai currency’s advance over the past three months to 3.5 percent, still the biggest in Asia.

Foreign direct investments by China turned positive in the final quarter of 2018, making the mainland Thailand’s biggest source of such inflows after Singapore, official data show. After the assault of a Chinese tourist by an airport official and a boat accident that killed dozens sparked a sudden drop in arrivals in 2018, tourism receipts in Thailand jumped by the most in a year in January.

Chinese Money Expected to Revive Thai Baht at Ringgit's Expense

The real driver for Thai growth stems from the domestic economy, with retail sales experiencing a double-digit expansion and consumer confidence rising in January by the most in more than a year to about 3 percent shy of August’s five-year high.

That view is reinforced by the World Bank, which says domestic demand and investment can help the nation weather tougher external conditions. The domestic economy’s resilience is keeping the Bank of Thailand relatively hawkish at a time when many Asian central banks have cut rates or said they may consider doing so, another key pillar of the baht’s strength.

Helping to bolster consumption is a revival in Chinese tourist arrivals. The baht has largely moved with Chinese tourism receipts since the yuan’s 2015 devaluation, so the return of travelers bodes well for an economy where 20 percent of gross domestic product comes from the industry. In contrast, Malaysia missed its tourist-arrival target for an eighth straight year in 2018.

Chinese Money Expected to Revive Thai Baht at Ringgit's Expense

While rising oil prices lent some support to the ringgit last month, current account dynamics remain in favor of the baht. Thailand’s current-account surplus against GDP came in at 7.4 percent in 2018, one of the largest among emerging markets and more than triple Malaysia’s 2.3 percent. Coupled with a faster buildup in foreign exchange reserves, the fundamentals are seen remaining in the baht’s favor even amid any sudden surge in global uncertainty that would spur investors to reduce their appetite for risk.

Chinese Money Expected to Revive Thai Baht at Ringgit's Expense

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