Funds Pile Into Thailand as Vaccine Progress Boosts Tourism Hopes

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Progress toward a coronavirus vaccine is fueling optimism Thailand will soon reopen for mass tourism. Overseas investors are already piling into the country’s financial markets.

Inflows into Thai sovereign bonds have jumped to the highest in 17 months in November, even though the month is less than half over. The nation’s debt has returned 3% to dollar-based investors since the end of October, while the baht has been the best-performing Asian currency during the period. New central bank Governor Sethaput Suthiwart-Narueput will oversee his first policy meeting next week, though he’s unlikely to do much to deter foreign funds.

Funds Pile Into Thailand as Vaccine Progress Boosts Tourism Hopes

“Foreigners have been mainly buying the front-end of the Thai debt curve for exposure to baht gains,” said Poon Panichpibool, a strategist at Krung Thai Bank Pcl in Bangkok. They are betting on Thai currency gains, and it looks like the baht will strengthen further over the next 12 months as the vaccine will be a major trigger for tourism arrivals, he said.

The favorable vaccine test results announced by Pfizer Inc. and BioNtech SE this week are particularly positive for the Thai economy given that tourism contributes roughly 20% of the nation’s gross domestic product. They may help speed up the progress toward the reopening for tourism, which has already started through talks with China to establish a quarantine-free travel corridor by January.

Overseas investors have snapped up a net $1.5 billion of Thai bonds this month through Nov. 12, according to data compiled by Bloomberg. The surge has trimmed net foreign sales this year to just $132 million, compared with a cumulative outflow of as much as $4 billion after the first five months of the year.

First Meeting

Sethaput is set to keep interest rates on hold at the monetary policy meeting on Wednesday, according to all of the seven economists surveyed so far by Bloomberg.

It’s possible policy makers may make some reference to baht strength being a negative for the economy. Nonetheless, Bank of Thailand may be restrained from overt actions to curb the currency’s gains for fear of being put on the watchlist by the U.S., Krung Thai’s Poon said. The U.S. Treasury report on international currency manipulation is expected to be released soon, having been delayed since April.

The recent political protests that have weighed on demand for Thai assets are also starting to look less of a deterrent -- at least based on one metric. The implied yield of the offshore baht has dropped below that of the onshore currency this month, after being more than 100 basis points above it in early September. The spread is seen as a proxy for political risks.

At the same time, there’s no sign the protests are going to end in the near future. The political noise may persist for some time as the 2013-2014 demonstrations took more than six months to settle, said Tim Leelahaphan, an economist at Standard Chartered Plc in Bangkok.

While there are always some negatives around, the overall outlook for Thai bonds due to the vaccine progress and resumption of tourism is looking better than it has for some time. The surge of inflows seen so far this month could well prove to be the rule rather than the exception as 2021 rolls around.

What to Watch

  • Thailand will release third-quarter GDP numbers on Monday and the central bank will announce an interest-rate decision on Wednesday
  • Indonesia will hold a conventional bond auction Tuesday, while the central bank will release a policy decision Thursday after keeping borrowing costs unchanged since August
  • The Philippine central bank meets Thursday, and Malaysia will release foreign-exchange reserves numbers on Friday

Note: Marcus Wong is an EM macro strategist who writes for Bloomberg. The observations he makes are his own and not intended as investment advice.

©2020 Bloomberg L.P.

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