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BlackRock Inc. is bullish on Thai bonds, Asia’s worst-performing in 2012, saying the central bank has room to ease monetary policy as a global slump cools demand for exports from Southeast Asia’s second-largest economy.
Thai government debt returned 2.1 percent this year, the least among 10 Asian countries tracked by HSBC Holdings Plc together with Taiwan’s, compared with 6.1 percent for India and 5.9 percent for Indonesia, the best performances. Consumer-price gains have stayed below 3 percent for the past four months, while the central bank has kept its benchmark interest rate at 3 percent since cutting it by 25 basis points in January.
“Inflation pressure should remain relatively subdued, providing room for the Bank of Thailand to ease if it needs to do so in response to worsening economic conditions,” Christian Carrillo, a senior rates strategist at BlackRock, the world’s largest money manager that oversees $3.56 trillion, said in an Aug. 23 interview. Singapore-based Carrillo said he favors longer-dated debt as “valuations seem to rule out entirely the possibility of monetary easing.”
Minutes of the BoT’s July 25 policy meeting released Aug. 8 showed policy makers are concerned that external risks threaten growth in exports, which account for about two-thirds of the economy, and may hamper the nation’s recovery from last year’s worst floods in 70 years. Hana Microelectronics Pcl (HANA), a Bangkok- based maker of parts for Apple Inc., said this month any increase in sales would represent an “achievement.”
The 10-year yield has dropped 13 basis points, or 0.13 percentage point, to 3.35 percent this quarter, while the five- year rate fell 15 basis points to 3.19 percent, according to data compiled by Bloomberg. The Bank of Thailand signaled after its last meeting that it has room to cut borrowing costs, forecasting 2.9 percent inflation this year from an earlier projection of 3.3 percent.
Gross domestic product increased 4.2 percent last quarter from a year earlier after rising 0.4 percent in the previous three months, official data showed Aug. 20, as government spending buoyed the economy. That compared with the median estimate in a Bloomberg survey for a 3.1 percent rise.
The euro-area economies contracted by an average 0.4 percent in the second quarter from a year earlier, official data show. HSBC lowered its 2012 growth forecast for China, Thailand’s biggest export market, to 8 percent from 8.4 percent, according to a report released Aug. 24, saying Asia’s largest economy is facing “global headwinds” that are much stronger than expected.
Thailand’s government last week cut its expansion estimate for this year to a maximum of 6 percent from 6.5 percent and lowered its export-growth projection to 7.3 percent from 15.1 percent. Overseas sales probably declined 3.8 percent in July from a year earlier, following a 4.2 percent drop in June, according to the median estimate of economists surveyed by Bloomberg before official data due Aug. 29.
“We might see some growth, but it won’t be much,” Hana Microelectronics Chief Executive Officer Richard Han said in an Aug. 17 interview in Bangkok.
Prime Minister Yingluck Shinawatra’s government has raised minimum wages and pledged to spend more than 2 trillion baht ($64 billion) on infrastructure and water-management projects over the next seven years to boost growth and minimize the damage from future floods.
“We’re bullish on Thailand,” Yichun Shi, a Taipei-based fund manager who helps oversees NT$109 billion ($3.6 billion) of assets at Eastspring Securities Investment Trust Co., a unit of Prudential Plc, said in an Aug. 24 interview. “Although we think the central bank probably won’t cut interest rates this year, we think it will continue with its expansionary monetary policies.”
The yield on the 3.65 percent Thai government notes due December 2021 touched 3.22 percent on July 23 and 24, the lowest level since February, according to data compiled by Bloomberg. The rate was 3.37 percent as of 10:39 a.m. in Bangkok. Without a reduction in borrowing costs, the scope for a further decline in bond yields is limited, according to Kokusai Asset Management Co., which oversees about $43 billion.
“The 10-year yield is unlikely to decline past 3.2 percent, given the policy rate is 3 percent with only a small chance of a rate cut any time soon,” Takahide Irimura, the Tokyo-based head of emerging-market research at Kokusai Asset, said in an Aug. 23 interview. “The yields may stay around the recent range of 3.2 percent to 3.5 percent for a while.”
Interest rates are a maximum 0.5 percent in the U.S., the U.K. and Japan, encouraging investors to shift funds to higher- yielding bonds in emerging markets. Global funds bought $21 billion more Thai government securities than they sold this year, according to data from the Thai Bond Market Association. The yield on the government’s 3.65 percent note increased 12 basis points in the past two weeks.
“The recent backup in yields seems overdone and they will go lower from here,” Wee-Khoon Chong, a Hong Kong-based strategist at Societe Generale SA, said in an Aug. 23 interview. “The outlook for the second half and possibly 2013 is not great. We see a good chance the central bank will ease in September.”
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