Currency crunch: Thai SET under strain as rates rise and baht bites

A recent policy rate hike of 0.25% by the Bank of Thailand, coupled with the weakening baht, is placing pressure on the Stock Exchange of Thailand (SET). Analysts have suggested this after observing that the index slipped below the resistance level of 1,500 points.

The Thai bourse experienced a downturn at the opening yesterday, following a 0.88% drop to conclude at 1,494 points on Tuesday. This dip was primarily linked to worries regarding an interest rate increase.

Asia Plus Securities (ASPS) noted that the index falling below 1,500 points is a detrimental technical sign. They further elaborated that the bourse has seen a slump of 10.5% this year.

ASPS also mentioned that for each quarter-point rate increase, the average trading value has decreased by 4 billion baht (US$108,903,000) per day, as observed from past data. They anticipate this rate increase will diminish the year-end SET target by 66 points, bringing it down from 1,590 points to 1,524 points.

Pawarisa Lertkijkhunanont, an ASPS’s fundamental investment analyst on capital markets, revealed there are so many risks for the stock market, including the threat of a US government shutdown, the Federal Reserve maintaining its rate steady until mid-2024, and worse than expected US personal consumption expenditure figures due on Friday, reported Bangkok Post.

ASPS predicts the next resistance level to be at 1,486 points. The SET index has witnessed a decrease of 82 points from its peak of 1,579 points in late August.

Interest rate surge

Pawarisa stated as worries over an interest rate surge continue, the Thai one-year bond yield has risen 25 basis points month-to-date to 2.44%.

“The yield increase resulted in capital moving from risk assets, including stocks, to the bond market.”

As of Tuesday, foreign investors have been net sellers of 48 billion baht month-to-date. This includes 22.4 billion in stocks and the remainder in bonds.

Rakpong Chaisuparakul, senior vice president at KGI Thailand Research, said hawkish statements from a few Fed officials, coupled with renewed investor concern about a US government shutdown, should drive US treasury yields and the dollar index higher.

“This does not bode well for regional risk assets in the near term.”

The baht yesterday was quoted at 36.41 to the dollar, its lowest in 11 months. This was partly attributed to the appreciation of the dollar. The baht later edged down to 36.50 baht to the dollar in the late afternoon. Analysts suggested that the baht could test 37 to the dollar by the month’s end.

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