The Baht At 6-year High Against The Us Dollar

[Old Man River]

Non-residents have been buying baht bonds to lay hands on Thai currency

*****

i fail to see the logic in this statement. why should they buy domestic Baht bonds when they can buy any amount of cash Baht offshore without restrictions? moreover, offshore cash Baht deposits offer the same yield like domestic bonds but are (unlike the paid interest on bonds) free of any income tax.

I don't see the logic either. After the 1997 crash, the BOT said one of the biggest surprises they had was how much THB was offshore that they didn't know about. It is the reason today why banks have to report all incoming and outgoing THB to the BOT on a daily basis. Hence, they pretty much know how much THB is offshore, but we can assume it is a lot.

By now, the BOT will have a pretty good idea of who the main speculators are (the usual suspects). We can be sure discussions are ongoing.

[bkkandrew]

And the US dollar is even lower to day. $1.96 to the UKP.

Now at 35.71 THB. As I said, once the auto-buy/auto-sell lot have got their transactions completed, there seems little resistance to moving lower...

London market opens in a mo. Wonder what today will bring?

[Firefan]

If one was already on a tight budget, living of a US$ pension or interest/savings from abroad, this Baht strengthening will certainly be felt. Many retired people living of social security only(maybe with a small own savings fund), are also running into visa-qualification trouble as the 40k(married)/60k marks are getting harder to reach.

Cheers!

[usatrader]

Non-residents have been buying baht bonds to lay hands on Thai currency

*****

i fail to see the logic in this statement. why should they buy domestic Baht bonds when they can buy any amount of cash Baht offshore without restrictions? moreover, offshore cash Baht deposits offer the same yield like domestic bonds but are (unlike the paid interest on bonds) free of any income tax.

I think if you read the article the issue is not in any a lotus of actually buying bhat per se but lies with the speculators using borrowed local bhat money in a bond held hedge game as the below quote says;

This is equivalent to the borrowing of baht from local banks, and waiting for the right time to convert the currency into US dollars when the greenback slides further. Once the first sell-back agreement expires, they strike another revolving contract.

It is a spec borrowing hedge play against further declines in the USD. Yet is being played with big amounts of money thus as the article says going against the underlying fundamentals that would not, without this speculation, lend to such gains in the bhat...

My opine anyway for what it is worth...

Personally I pulled out of the BHAT sometime ago leaving only my homes invested long ago and paid for when the Bhat was in the mid 20's as I recall... Took my bhat converted monies and went partially to a hard currncy fund called MERKX ( No load 1.25% expense and 12-B cost of .25% and to a lesser degree its inverse USDX now on a year and it has done well enough for me.

MERKX

Country Allocation

Region Currency Percent

Europe Euro 45.5%

Swiss Franc 5.9%

Swedish Krona 4.6%

British Pound 3.5%

Norwegian Krone 3.3%

Australasia

Australian Dollar 12.6%

New Zealand Dollar 2.1%

North America

Canadian Dollar 13.4%

US Dollar, net * -0.1%

Gold Gold * 9.1%

USDX

trade-weighted geometric averagesix currencies (euro, Japanese yen, British pound, Canadian dollar, Swedish Krona, Swiss Franc)

Then again I am an old fart with big risk aversion syndrome playing bonds heavily but looking

(researching) a play at big US exporters perhaps...

[Naam]

"I think if you read the article the issue is not in any a lotus of actually buying bhat per se but lies with the speculators using borrowed local bhat money in a bond held hedge game as the below quote says;

This is equivalent to the borrowing of baht from local banks, and waiting for the right time to convert the currency into US dollars when the greenback slides further. Once the first sell-back agreement expires, they strike another revolving contract."

*****

i also fail to see the [economic] logic in this procedure. borrowing THB to buy THB denominated bonds generates a loss as the borrowing cost is higher than the yield of the bonds. secondly the bond yields are taxable creating an additional non-recoverable loss. both losses combined would in -my (not so) humble opinion- be greater than the profit generated by the appreciation THB/USD we saw during the last 1½ years.

so my question is: "where's the beef?"

[Old Man River]

Non-residents have been buying baht bonds to lay hands on Thai currency

*****

i fail to see the logic in this statement. why should they buy domestic Baht bonds when they can buy any amount of cash Baht offshore without restrictions? moreover, offshore cash Baht deposits offer the same yield like domestic bonds but are (unlike the paid interest on bonds) free of any income tax.

I think if you read the article the issue is not in any a lotus of actually buying bhat per se but lies with the speculators using borrowed local bhat money in a bond held hedge game as the below quote says;

This is equivalent to the borrowing of baht from local banks, and waiting for the right time to convert the currency into US dollars when the greenback slides further. Once the first sell-back agreement expires, they strike another revolving contract.

It is a spec borrowing hedge play against further declines in the USD. Yet is being played with big amounts of money thus as the article says going against the underlying fundamentals that would not, without this speculation, lend to such gains in the bhat...

The question is not what the artilce says, but why? In the article it mentions that the BOT is considering making it difficult for non-residents to purchase onshore THB bonds as a means of stopping speculation. When THB is readily available overseas and renewable loans are easy to be had for institutional investors, how does blocking access to onshore THB bonds help? They will just get it offshore and as Dr. Naam's points out it is cheaper. Can you explain this?

[Indifferent]

The local currency had strengthened in the same direction with other regional currencies.

Songpol Cheevapanyaroj, an executive in charge of the capital market business group at Kasikornbank, said the baht had strengthened because the US dollar had weakened against currencies in Asia.

USD/Japanese Yen

USD/Baht

Hmmmm......doesn't look like it to me. Looks more like a continuing trend whilst other currencies are pretty stable.

This makes for an interesting read. A bit outdated (September) but explains one of the other theories behind the bahts continued appreciation.

Full Article

Since the topic of this discussion is the fact that governments consistently lie and can not be trusted, let’s take a quick look at possible reasons why the baht has remained strong against the dollar despite the dollar’s strength against other currencies. The sale of Shin Corp. brought the Shinawatra family 73 billion Baht. My guess is that the Shinawatra family is in the process of greatly diversifying this huge windfall of Baht into other currencies, including Euros and possibly Yen. A weaker Baht would translate into losses of millions of baht in foreign currency exchange transactions for the Shinawatra family.

They may live to regret not freezing Toxins bank accounts.

Edited December 2, 2006 by Indifferent

[usatrader]

Good sirs, Dr Naam and Old Man River, I am not quite certain if you are implying I should answer you or someone else?

Yet, if indeed your queries where to me, I can not come up with any viable reason why you both take for granted I am some how obligated to prove your disagreements with the equation of these speculators, that, I am not saying are affecting the gains in the Baht but instead, that the Bank of Thailand says are and have been a big factor in why the Baht is gaining strength against the logic of the underlying fundamentals that do not support such gains.

Gains, that, you can readily research, especially noting in this last year, that they were across the board appreciating the baht as to most currencies. That is until recently, when the Euro and Sterling began an upward advance against the USD and the Baht.

In the last year alone, thru November, the Baht has appreciated, in average monthly value, against the Dollar to the tune of 7.82% ( Jan06-39.699778 vs Nov06 –36.595933 or –3.103845 Bhat / USD.

Similarly, if the time frame of these speculators loan schemes go back to say 2001, the recent annual average high water mark for the Baht (44.49109) then, the currency gain alone amounts thru Nov 2006 annual average to 21.57% or $1.455 million.

In raw simplicity, if one bought 300,000,000 baht bonds at the average Jan rate and sold at the raw average Nov rate they would have made a raw USD currency appreciation of 8.48% or some $640,900 or so dollars.

I think the article said that these speculators are circumventing policy acts by the BOT to limit foreign holdings of the Bhat and bonds in Thailand.

"This has taken place after the central bank plugged a hole by forbidding commercial banks to sell bills of exchange with a maturity of less than one year to non-residents," Suchada said.

Prior to that, the BOT also forbade non-residents from maintaining individual outstanding deposits of more than Bt300 million.

"The new financing scheme by speculators was introduced at a time when domestic interest rates were on a downward trend. (decreasing borrowing costs) This leads to a decline in long-term bond yield curves (thus an increase in bond price for bonds bought at lower process in Baht)and (thus creating) boosts (in) trading activity (IBID; greater demand for) baht bonds."

As to taxes, I must assume that either the Corporate Income Tax (CIT) and not the Specific Business Tax (SBT) may apply. Thus tax ,which is at 3% and has a limited upper local rate of 10% and as well allows for many exemptions to the tax. Likewise the BOT prime rate is at 5% thus if one would then take the laborious effort to calculate, there may indeed be some rime and reason to such speculation.

Likewise, if one buys Thai bonds offshore, they do so in currency other than the Baht with outlays of their own money or foreign currency denominated loans that are not paid back in Baht. While if they borrow the money from a Thai bank, they borrow and owe it back in Thai Baht alone and have no currency risk yet incurred. Thus their risk is in the either or, of increasing yields and decreasing prices and or decreasing yield and increasing prices in only Thai Baht..

Now I have no idea if the bonds the BOT is talking about carry a tax consequence or not…But if they do I assume it is along the lines of Corporate Income Tax (CIT) and not the Specific Business Tax (SBT). The former of which has some areas of exemption and rates at 3% or so plus a scaled limited 10% local top tax rate. as I understand That is if they are not in one the exempted categories. Though it seems any real player knows that any profits are going to be taxed by someone and that there are international treaties that exempt double taxation affecting many countries thus perhaps the tax beurden in Thailand would be less for the same gain? Any way it goes reach professionals would claculate this into the play.

http://www.thaivisa.com/corporate_income_tax.0.html

"A foreign company, not carrying on business in Thailand but deriving certain types of income from Thailand, such as service fees, interests, dividends, rents, professional fees, is subject to corporate income tax on the gross amount received. It is collected in the form of withholding tax by which the payer of income shall deduct the tax from the income at the rate shown in 3 (Tax Rates). 10% for Interest and dividends."

http://www.thaivisa.com/thai_business_tax.0.html

Now then I think the BOT’s prime rate is 5% and one must assume bonds will yield some what higher and if I am not incorrect here, certain types of Thai bond prices have been gaining in price showing increasing demand to buy of late giving rise to more yield for speculators beyond bond yield, currency appreciation and lower trends in borrowing costs..

Again, I am unsure why anyone would presume to doubt the veracity and potentiality of professional currency Speculators capabilities in affecting the baht as the BOT is saying? They have, as we know, like in 1997, played this baht game very well before.

Then again, I have no dog in this conundrum. That is until the baht gets in the mid 20’s to USD. Thusly, affecting my home values if converted to USD. Though so many years of usage kind of offsets any potential loses if it gets there to my mind anyway. Of course, that is if I ever sell them, which is unlikely...

My apologizes if your comments were unintend for me to respond to and of course for the verbosity of the post...