BOT move may not affect capital outflows, baht much, says Tisco

THE NATION

BANGKOK: -- A minimal impact on capital outflows and the baht is expected after the central bank recently relaxed regulations to encourage outflows, according to Tisco Securities.

Unlike in 2010, the impact this time around might not be significant, the brokerage said yesterday.

The Bank of Thailand has eased outward direct investment since late 2010 by allowing an unlimited amount of ODI for Thai companies. In 2011, ODI doubled to US$8.22 billion (Bt252 billion) from $4.62 billion.

Under the new plan, early next year the $100-million current limit on an individual's ODI will be removed.

"Because of data limitations, we don't have information on this, but believe that the $100-million ceiling is non-binding, meaning that Thai individuals' ODI is usually less than the ceiling. Thus lifting the ceiling further may not have any meaningful impact on Thai ODI," said Kampon Adireksombat, senior economist at Tisco's economic strategy unit.

The impact on portfolio flows should also be limited. The relaxation will start with the portfolio category next month.

Portfolio outflow has been large in recent years, for example $8.15 billion in 2007 and $7.75 billion in 2009. This was mainly concentrated in financial institutions' investments in high-yield debt securities, including South Korean debt.

"Looking forward, even with the relaxation, we don't expect a substantial portfolio outflow," Kampon said.

The prospects for investing abroad are not attractive at this moment, as reflected by estimates of investment return indicators such as dividend yield, capital gains and premiums on foreign government bond yields to local bonds. The dividend yield of Thai equities is likely to outperform peers, forecast at 3.3 per cent this year and 3.9 per cent next year.

And the Stock Exchange of Thailand has also outperformed the region in capital gains year-to-date with a 26.1-per-cent return.

Unless portfolio investment abroad becomes very attractive compared with the local market, Tisco still expects capital inflows to be larger than outflows.

With the prolonged euro-zone crisis, the baht should move in line with regional trends, with capital inflows, especially from portfolio investment, remaining the major determinant.

"We therefore expect a very minimal impact on the baht in the short term," Kampon said.

-- The Nation 2012-10-31

Hey, a change that don't change nothing. Sound Thai policy.