The Rising Baht: Who Gains, Who Loses? 4-12-2006 (Kasikorn Research)

Continued appreciation is predicted as well as the need for industries that are affected to develop ways to cope with baht appreciation and volatility:

"Lately, the Baht has continued to strengthen due to continued capital inflows and a positive outlook toward the Baht and the Thai economic and political situation. In addition, the Baht’s gains can also be attributed to the fact that traders are concerned about US economic growth and the bearish US Dollar in light of slowing US GDP growth that might prompt the Federal Reserve to cut their policy interest rate in the year to come, as widely expected. Most dealers also expect to see the Baht continue to rise because it has so far lagged behind other regional currencies, post-1997 crisis. Given this, the Baht will likely strengthen further in the coming year, particularly if the Thai economy fares better in 2007 and the domestic political situation shows improvement, i.e., the drafting of a new constitution and general elections. KASIKORN RESEARCH CENTER (KResearch) expects that the Baht may strengthen to touch THB 35.0 per USD in the first half of 2007 and may close the year within a range of THB35.0-36.0 per USD, against a 2006 year-end value of THB35.5-THB36.0/USD."

"As for the impact on the economy, it is projected that businesses whose incomes are largely derived in foreign currencies, but have most of their expenses in Baht – such as exports of food and processed agricultural products – are likely to be most seriously impacted by the Baht’s appreciation. On the contrary, businesses that import goods from overseas, e.g., hi-tech components that cannot be produced domestically, as well as businesses in outbound tourism, or those who have foreign debts are likely to benefit from this appreciation."

"KResearch also believes that exporters affected by the stronger Baht will need to prepare for Baht volatility, for example, by using forex risk management methods and tools, and by diversifying their export destinations, reducing trade denominated in USD, and through other more complex financial tools. Concerning their medium- to long-term adjustments if the Baht continues to rise steadily, entrepreneurs may have to consider importing raw materials from overseas or outsourcing some steps of production to other countries instead of using domestic raw materials or materials/components that are primarily produced in Thailand. In addition, they may have to consider relocating some manufacturing plants abroad where production costs are lower or will be less affected by the declining trend of the US Dollar."