Bangkok--9 Feb--KASIKORNBANK
KASIKORNBANK believes that business in 2017 will be extremely challenging given the US political risk, which could send the Baht down to THB36.50/USD. Debentures from the private sector are expected to amount to THB600 billion, plunging by 20-25 percent following default issue while costs of debentures of blue-chip companies will remain low. The Thai economy is projected to grow close to last year at 3.3 percent.
Mr. Thiti Tantikulanan, Capital Market Business Division Head of KBank, said that the capital market will continue to face a tough time in 2017, due particularly to political tension in the US. Notably, the "America First" policy initiated by President Donald Trump has worried investors across the globe. Among these moves are an immigration ban on citizens of seven Arab countries and additional protectionism such as an increase in tariff rate for Chinese merchandise to 45 percent – this will definitely be hostile to global trade. As for Thailand, if the US import Thai products 1 percent lower, our exports will tumble 0.9 percent.
Capital market-wise, the US dollar will be trending up when compared with most currencies while interest rates are expected to rise from 2016. Expected to reach THB36.50/USD at the year-end, the Baht will be in less demand thanks to smaller differences between Thai and the US interest rates, as a result of the Fed's further rate hike. On top of that, the US government's big plan to rebuild America through massive infrastructure investment and tax cut will require large borrowings, which also mean fiscal deficit and elevated financial costs. This would in turn increase our financial costs due to rising interest rates. With this in mind, businesses are advised to formulate plans to fall back on.
Over the past year, exporters increasingly agreed to do forward exchange contracts owing to high market fluctuation and the Baht that has been strengthened against the US dollar since mid-2016. The US dollar, Euro and Yen remain major currencies that customers choose for international transactions. Greater connectivity in regional trade will also set off appreciation in AEC currencies, including the Ringgit and Rupiah. Seeing this trend, KBank has expanded its advisory services to encompass consultation on financial reports and risk management. Customers are pleased with these additional services, help spurring foreign exchange transactions which are intended to facilitate investment and borrowing at significant rates. This year, KBank plans to extend its reach to customers in need of these services.
In 2016, the debt market was valued at THB785 billion. KBank remained the leader in the business, with 12.3 percent share of the government bond market and 17.2 percent share of debenture underwriting in the primary market (excluding KBank debenture underwriting). The volume of debentures that KBank underwrote in the primary market during 2016 surged 56 percent YoY, while the overall market grew 36 percent, due partly to fund mobilization by the private sector for mergers and acquisitions (M&A). In addition, interest rates in the market remained low, thus allowing companies to mobilize funds for refinancing or M&A at lower costs. It should be noted that although "A" rated debt instruments accounted for about half of the market, the amount of unrated debt instruments grew by more than double.
Mr. Thiti added that the volume of debentures in the primary market during 2017 may slow from 2016 to some THB600 billion, declining approximately 20-25 percent YoY, because of significant declines in the issuance of bills of exchange and unrated debt instruments caused by debt defaults in 2016. However, issuers of quality debt instruments will likely be able to mobilize funds at low costs. In 2017, KBank expects that many companies in the utility, power and property sectors will continue to mobilize substantial funds from the debt market and KBank will continue to be a leader in this business amid the development of the Thai debt market.
Meanwhile, it is expected that the overall Thailand economy during 2017 will advance some 3.3 percent, which would be almost at parity with that reported in 2016, while exports may grow marginally at 0.8 percent. Household debt should remain static at 82 percent of GDP. Tourism should continue to be a key driver of the Thai economy. Inflation will likely rebound to 1.8 percent and the policy rate may lean toward 1.5 percent throughout the year, aimed at supporting the Thai economy to recover gradually. Any additional cuts in interest rate may trigger risk stemming from the "search for yields".