Money In Thailand - What Should I Buy

[Digger]

Some really powerfull stuff going on in other threads - sounds great except I dont understand more than half of it

For those of us that live and work in Thailand, who have savings here - what is the consensus on what we should be doing? I already have dollars, Euro's and pounds offshore and am content with that, but am feeling that something could happen with the baht soon, which could lead people to benefit by changing their assets now.

Assuming the cap comes off diesel fuel here - will it affect the strength of the economy and thus the baht in the short term (less than 1 year)? If it does as an example should we/I be buying gold here in the hope that if the baht depreciates, then I presume gold will go up IN THAILAND AND BAHT terms. So again trying to keep it simple, should one be buying gold at the moment in case the Thai economy nosedives once diesel goes up to market price. I have heard it said from an economist that the debt on diesel fuel is huge in Thailand and now the election is over that the cap MUST be removed to actually pay for the subsidy that has been in place when fuel prices were sky high. Conversly if the cap is removed, I presume everyone will use it as the excuse to increase costs which of course get past through the supply line and everything goes up in price. In simple terms, again IN THAILAND, what is the impact of that. Could this mean that the baht weakens considerably against say the Pound, Euro etc. Is this a good time to be moving baht out of Thailand, coverting into other currencies and then potentially moving it back if the baht falls substantially. My situation is that I live here, work here, own property here and will likely be here for a fair time. In fact most of my money/investments are in Thailand but I could currently move money out of baht if there might be an advantage to then buy back in at a better price.

One thought I had was somehow moving baht into another holding which could then be transferred back into baht very easily and without too much hassle through banks.

Hyperthetically, assume we are talking about 1,000,000 baht of cash (in Baht) that could be changed to say Gold which as we now is a readily changeable commodity here. Should I be worrying or just sit tight on the cash.

Any simple advice welcomed from what are clearly some very streetsmart guys out there.

[Digger]

Blimey - Just seen that gold has fallen to 415US$ an ounce and Thai price down about 800 baht to 7,800 baht a baht. Good time to buy or not?

[jerry921]

If fuel, or anything similar, has a sudden price rise you can get this chain of events:

fuel price goes up

businesses raise prices on everything else to compensate

this is inflation

the government raises interest rates to fight inflation

this makes borrowing money more expensive and difficult

businesses can't borrow money so some fail and some don't grow

jobs and business dry up

This is called "stagflation", a combination of stagnation and inflation.

This is what happened in the U.S. in the 70's during the Arab oil embargo.

Another thing that can happen as a part of all this is the currency depreciates versus other currencies.

If this happens you don't really want to be in any of the following investments: cash in the local currency, stocks, or regular bonds (especially long-term bonds).

Real estate can be a good haven if you either own the property outright or have a FIXED rate mortgage (you'll get killed if you have a floating rate obligation). You can also get killed if you can't rent the property out, or if you have to sell the property before times get better, or if you buy at the wrong time... And since you can't own the land in Thailand, which is the safest part of a real estate investment...

Gold does pretty well at the beginning of this scenario, but once the government starts jacking up interest rates it loses out, because you don't get interest on money invested in gold.

That said, I'll repeat what I said on gold:

Investing in gold is gambling. It has a 1/20 shot of winning for you. 2004 was a good year for gold. Would you play a slot machine that had just made a big payout?

To win on gold you really have to time it right at both ends: You have to see that this might happen before everyone else does (and we're past that already), and then you have to be able to predict when its going to get better before everyone else does in order to time your exit from gold back into something useful.

So what to do? Don't panic. If you are pretty evenly spread out between baht, dollars, pounds and euros, then sit tight. If you're mostly in baht, and you're really worried about the baht, then rebalance a little. If you've got floating rate mortgages, refinance them or pay them off. Don't panic.

Inflation protected bonds can be ok, but when everyone is sure there's a huge spike of inflation coming then you pay a high premium for the inflation protection. (The premium is the difference in interest rate between the inflation-protected bond and what you'd get on an equivalent bond without the inflation protection)

And make sure that you're not panicing before you do anything.

[Braccobaldo]

..Hi, Digger...

..you have had good advice from Jerry...I just want add that I really don't think there are big risk of strong depreciation of the bath right now...if your savings in THB are about one million...don't think too much...better sit on it.

About gold...NO certainty about the future trend...

[Baaksida]

For those of us that live and work in Thailand, who have savings here - what is the consensus on what we should be doing?... Gold which as we now is a readily changeable commodity here. 

<{POST_SNAPBACK}>

Living in LOS, I usually invest all my cash in Thailand's most precious commodity: women...

And yes, they really love gold!

[gobkk]

Economists predicting the USD hitting a low of $1.50-.60 per euro this year is bullish for gold and silver.Prices are right now to stock up.

[Braccobaldo]

..well, if the economists make this predictions better to start buy dollars...

...they are wrong everytime...

[Digger]

If fuel, or anything similar, has a sudden price rise you can get this chain of events:

fuel price goes up

businesses raise prices on everything else to compensate

this is inflation

the government raises interest rates to fight inflation

this makes borrowing money more expensive and difficult

businesses can't borrow money so some fail and some don't grow

jobs and business dry up

This is called "stagflation", a combination of stagnation and inflation.

This is what happened in the U.S. in the 70's during the Arab oil embargo.

Another thing that can happen as a part of all this is the currency depreciates versus other currencies.

If this happens you don't really want to be in any of the following investments: cash in the local currency, stocks, or regular bonds (especially long-term bonds).

Real estate can be a good haven if you either own the property outright or have a FIXED rate mortgage (you'll get killed if you have a floating rate obligation).  You can also get killed if you can't rent the property out, or if you have to sell the property before times get better, or if you buy at the wrong time...  And since you can't own the land in Thailand, which is the safest part of a real estate investment...

Gold does pretty well at the beginning of this scenario, but once the government starts jacking up interest rates it loses out, because you don't get interest on money invested in gold.

That said, I'll repeat what I said on gold:

Investing in gold is gambling.  It has a 1/20 shot of winning for you.  2004 was a good year for gold.  Would you play a slot machine that had just made a big payout?

To win on gold you really have to time it right at both ends: You have to see that this might happen before everyone else does (and we're past that already), and then you  have to be able to predict when its going to get better before everyone else does in order to time your exit from gold back into something useful.

So what to do?  Don't panic.  If you are pretty evenly spread out between baht, dollars, pounds and euros, then sit tight.  If you're mostly in baht, and you're really worried about the baht, then rebalance a little.  If you've got floating rate mortgages, refinance them or pay them off.  Don't panic.

Inflation protected bonds can be ok, but when everyone is sure there's a huge spike of inflation coming then you pay a high premium for the inflation protection.  (The premium is the difference in interest rate between the inflation-protected bond and what you'd get on an equivalent bond without the inflation protection)

And make sure that you're not panicing before you do anything.

<{POST_SNAPBACK}>

Thanks for that advice - I have no mortgages on properties in Thailand so am not too concerned about that. Would be interesting to hear any insight on quite how big this fuel deficit is for Thailand. Petrol is free market price but I guess accounts for 10-20% of overall fuel consumption with diesel making up the lions share. I have not seen any forcasts in print about what this will mean if and when Thailand has to remove the diesel cap, but I guess now is as good a time as any if they have to do it and hopefully come the next election it will have been forgotten about. Obviously a weaker baht would help exports from Thailand as well and be usefull in getting more tourists back into Phuket etc.

On a more general basis, would there be a huge issue in Thailand if the baht was to go to say, 100 to the pound or 70 to the Euro? Seems like lots of reasons why it might be advantageous to Thailand right now.

[Digger]

Just found this article from the Nation on fuel issue:

FUEL SUBSIDY COST : Bt63 bn and rising daily by Bt179m

Published on January 26, 2005

Petrol prices to go up but diesel peg stays

The Thaksin government has postponed any increase in the diesel-oil price since last January, engaging in wishful thinking that world oil prices might come down after the general election on February 6. But global oil prices are showing no signs of softening – and the oil-price subsidy has cost the country some Bt63.56 billion to date.

The state-owned PTT yesterday announced it would increase local prices of petrol products – which have been floated – by 40 satang a litre from today, sending the prices of petrol 95 octane to Bt19.69 a litre and petrol 91 to Bt18.89 a litre.

The oil giant earlier delayed such a price rise, a move that negatively affected other oil companies, which in turn filed complaints.

The government has made known its plan to start cutting its price subsidy for heavy diesel oil from next month, after having capped the price at Bt14.59 per litre on January 10 last year. It is betting on seasonal factors pushing world oil prices down, as winter recedes in the Northern Hemisphere.

Dr Anusorn Sangnimnuan, president of Bangchak Petroleum, which operates its own oil refinery and petrol stations, told reporters yesterday average world oil prices this year are expected to exceed 2004.

He cited several reasons. The price of Dubai crude, Thailand’s benchmark, is forecast at US$35 to $38 per barrel this year, compared with an average price of nearly $34 last year, he said.

“The price on the Nymex (New York Mercantile Exchange) peaked at $55 a barrel last year, but this year they [oil experts and analysts] think it might reach $60 at some point.”

Anusorn said many factors were contributing to the bullish forecasts: a substantial increase in global gross domestic product, continued international geo-political instability and terrorist concerns, a weakening US dollar and speculative purchases of oil in futures markets by hedge funds.

“The price of diesel oil today hit $50 a barrel again, despite prices normally coming down during this period, when winter starts to end,” he said. The government would need to continue controlling domestic prices of oil products for a while longer, the Bangchak chief said.

“However, if the diesel price were raised to Bt16 or Bt17 per litre, that should not affect the economy too much,” he said, suggesting the government reduce its controversial subsidy.

According to the Ministry of Energy, the diesel subsidy is now Bt3.58 per litre, costing the country about Bt179 million each day.

PTT senior executive vice president Apisit Rujikiatkamjorn said that since December 16 – the date of the latest domestic oil-price adjustment – world oil prices have continued to climb, with Dubai crude rising $6.15 a barrel to $40.35, and petrol prices on Singapore’s market increasing $5.62 a barrel to $50.37.

He said these increases stem from lower-than-normal temperatures in the Northern Hemisphere, as evidenced by the recent blizzard in the northeastern US; expectations for Opec’s oil production; and increased petrol demand in Indonesia.

Pichaya Changsorn

The Nation