Connect with us

Business

Phuket Finance: Currency crisis warning signs

Legacy Phuket Gazette

Published

 on 

PHUKET: THE strength of the Thai Baht is a major topic of conversation these days, especially since so many Phuket residents are living on a fixed income, denominated and paid in a foreign currency from abroad. We have all been feeling the same pain as the combination of the strong baht and domestic inflation has led to our hard-earned money buying less and less. Oddly enough, I am one of the few who believe better days may not be that far away and there is plenty of historical evidence to support this view.

I actually had the idea for this article as I was studying for the six-hour CFA (Chartered Financial Analyst) level-two exam which I will be sitting shortly, and one of the topics that really hit home was on the warning signs of a currency crisis. Much to my relief, Thailand’s current situation has the baht appearing to be the poster child for a currency crisis in the making.

But unfortunately, similar to any bubble or impending crisis, it is impossible to predict the catalyst or timing of when the proverbial fan will be hit. What is clear is that the current course of the baht is irrational and unsustainable, and that something will eventually have to give.

According to the CFA Institute, some of the warning signs of a currency crisis are deteriorating trade terms, a dramatic decline in official foreign exchange reserves, a foreign exchange rate higher than the mean reverting level, high inflation, equity markets experiencing a boom-bust cycle, and expanding nominal private credit.

While we are unsure of the actual state of the government’s foreign exchange reserves, there have been reports in the local press that all is not right. I won’t make any judgments, but instead leave it to the reader to consider what to believe on this. And I’ll do the same with regard to the published official inflation figures, but it does seem to met that prices are rising at an ever-increasing rate and that the published figures do not reflect this.

The Thai market has been one of the biggest boomers for three years in a row now and every boom is followed by a bust.

The banks here, while not nearly as bad as those in the US leading up to the real estate crash there, have been forking out easy money to buyers of their first homes and first automobiles at a pretty rapid clip. Thus nominal private credit is surely expanding, and you should keep in mind there are no fixed rate mortgages handed out by Thai banks. Thus if borrowers struggle even a little to make payments now, any rise in interest rates could likely see defaults shoot through the roof.

Most major movements in any market overshoot the long term mean and typically end in the same kind of rapid movement we have seen from the baht recently. Usually there will be a final spike with something like a 50% retracement afterwards, but of course this doesn’t always happen. Looking back at history, it appears we are above the long term mean reverting level by quite a bit. Thus the baht pretty much fits nicely into the box of a currency crisis in the making.

Unfortunately, predicting the precise end of bubbles is a fool’s game. So for those of you on fixed foreign incomes, I can’t say it won’t get worse before it gets better. If you look back at where the baht was before the 1997 crisis, we still have room for it to strengthen even more without going into ‘craziness territory’. I do think this will not last forever or even that much longer, and if you sit tight we will eventually see the baht return to more reasonable levels, even if not all the way back to where they ended after the last crisis.

David Mayes MBA resides in Phuket and provides wealth management services to expats around the globe, focusing on UK pension transfers. He can be reached at david.m@faramond.com or 085-335 8573. Faramond UK is regulated by the FSA and advises on pensions and taxation.

This article appears in the current issue (May 18-24) of the Phuket Gazette newspaper, now on sale at newsstands throughout the island. Digital subscribers may download the full issue, this week and every week, by clicking here.

Keep checking our online Phuket Business pages for the latest local and national business updates. Alternatively, join us on our Facebook fan page or follow us on Twitter.

— David Mayes

 

Get more from The Thaiger

📱 Download our app on Android or iOS
👋 Have your say on our Thailand forums
🔔 Subscribe to our daily email newsletter
📺 Subscribe / Join YouTube for daily shows
👍 Like/Follow us on Facebook
🐦 FOLLOW us on Twitter
📷 FOLLOW us on Instagram

image

Join the conversation and have your say on Thailand news published on The Thaiger.

Thaiger Talk is our new Thaiger Community where you can join the discussion on everything happening in Thailand right now.

Please note that articles are not posted to the forum instantly and can take up to 20 min before being visible. Click for more information and the Thaiger Talk Guidelines.

Click to comment

You must be logged in to post a comment Login

Leave a Reply

Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

Follow Thaiger by email:

Thailand4 hours ago

Thailand News Today | Australian released from death row, Samui restaurant raided | September 20

News5 hours ago

Pathum Thani man allegedly lights building on fire, sticks around to laugh and smile

Thailand5 hours ago

Australian and American on Thai death row released from Thai death row, Supreme Court clears drug trafficking case

Welcome back to Thailand!

Thaiger is getting behind local businesses for the restart of tourism in Thailand - up to 50% discounts across all advertising packages!

World6 hours ago

Insect snacks hit Japanese vending machines

Thailand7 hours ago

The Return of ‘THE TIM’ | Thaiger Bites | September 20

Coronavirus (Covid-19)7 hours ago

Monday Covid Update: 12,709 new cases; provincial totals

image
Join the conversation on the Thaiger Talk forums today!
Thailand7 hours ago

Pattaya laundry shop reports ladies’ underwear thief is on the loose

World8 hours ago

Hanoi to ease Covid restrictions this week

Thailand9 hours ago

Morning Top Stories | No approved October re-opening, Phuket easing restrictions | September 20

Thailand9 hours ago

Government believes more suspects involved in theft from budget meant for the disabled

Thailand10 hours ago

Dual Pricing and Reduced tax on Alcohol | Good Morning Thailand | Episode 92

Thailand11 hours ago

Around 20 people arrested at Koh Samui restaurant for drinking alcohol, gambling, playing pool

Bangkok11 hours ago

Bangkok residents warned of flooding risk as torrential rain forecast this week

Thailand11 hours ago

Government seeks to regulate infectious waste disposal charges

World12 hours ago

Manny Pacquiao to run for president of the Philippines

Morning Top Stories Thailand | Police to end protests, Human Trafficking | September 14 | Thaiger
Thailand6 days ago

Morning Top Stories Thailand | Police to end protests, Human Trafficking | September 14

Thailand7 months ago

Thailand News Today | Thai Airways in rehab, All go for Songkran | March 4

Tourism7 months ago

Phuket’s nightlife. Yes, bars and clubs are still open | VIDEO

Phuket7 months ago

Thailand News Today | Covid passport talks, Thai Airways heads to court | March 2

Tourism7 months ago

Phuket Thai food treats you need to try | VIDEO

Thailand7 months ago

Thailand News Today | Bars, pubs and restaurants ‘sort of’ back to normal | Feb 23

Tourism7 months ago

In search of Cat & Dog Cafés in Phuket Town | VIDEO

Thailand8 months ago

Thailand News Today | Gambling crackdown, Seafood market to reopen, Vlogger challenge | Jan 21

Thailand8 months ago

Thailand News Today | Covid testing for visas, Business impact, Vaccine approval | January 19

Thailand8 months ago

Thailand News Today | Weekend Bangkok bombs, Thailand fires, Covid update | January 18

Thailand8 months ago

Thailand News Today | Stray car on runway, Indonesian quake, 300 baht tourist fee | January 15

Thailand8 months ago

Thailand News Today | Governor off respirator, sex-trafficking arrest, condo prices falling | January 14

Thailand8 months ago

Thailand News Today | Chinese vaccine, Thailand ‘drug hub’, Covid update | January 13

Thailand8 months ago

Thailand News Today | Bangkok may ease restrictions, Phuket bar curfew, Vaccine roll out | January 12

Thailand8 months ago

Thailand News Today | Covid latest, Cockfights closed down, Bryde’s Whale beached | January 11

Trending