Thai Baht Strengthens as Foreign Capital Floods into Bonds Amidst Global Economic Uncertainty

Public Debt Office and analysts confirm inflows are long-term investment, not 'hot money', despite economic fragility; US trade policy cited as key driver

 

The Thai baht has shown unexpected strength this week, touching the 32-baht-to-US-dollar mark, driven primarily by a significant influx of foreign investment into Thailand's debt market.

 

This comes as the US dollar loses its appeal as a safe haven asset, largely influenced by US President Donald Trump's extreme trade policies.

 

From early 2025 until Thursday (May 22), foreign investors have collectively made net purchases exceeding 70 billion baht in Thai debt instruments, with analysts foreseeing continued inflows given the anticipated high market volatility from Trump's ongoing policies.

 

Pachara Anantasilp, Director-General of the Public Debt Management Office, highlighted strong international investor confidence in Thailand's financial and fiscal stability.

 

He noted that the recent auction for 8 billion baht in long-term government bonds was oversubscribed by more than two times, with foreign funds accounting for over half of the bids.

 

This conviction persists despite Moody's Investors Service recently lowering Thailand's credit outlook from 'Stable' to 'Negative'.

 

Observations suggest that the foreign capital entering the market is predominantly long-term investment, not the volatile 'hot money' that swiftly enters and exits.

 

These funds, focused on risk management, are opting for stable assets with lower risk, even if returns are not exceptionally high.

 


"The Thai bond market is performing exceptionally well, exceeding expectations, and this trend is likely to persist until the year-end," Pahara stated. "While the broader global and Thai economic outlook may appear subdued, Thailand's fiscal position remains robust and can serve as a crucial instrument for economic propulsion."
 
 

Koraphat Vorachet, Assistant Managing Director and Head of Research at Krungsri Securities Plc., pointed to a substantial and accelerating flow of funds into the bond market, with $2 billion in foreign capital entering Thai bonds since the start of the year.

 

Notably, the second quarter of 2025 alone saw inflows reach $1.7 billion, primarily directed towards medium and long-term bonds.

 

Conversely, the Thai stock market is currently in a consolidation phase, awaiting new catalysts to boost Asian inflows. However, the positive momentum in the bond market is expected to enhance liquidity, potentially fostering positive sentiment for Thai equities moving forward.

 

Roong Sanguanruang, Senior Director of Global Markets Strategy at Bank of Ayudhya Plc., reiterated that the baht's appreciation this week stems from foreign capital inflows into Thai debt, both short and long-term, following the US dollar's diminished safe-haven status post-Trump's aggressive trade stance.

 

The Thai stock market has yet to see clear inflows, lacking distinct advantages, with foreigners net-selling 55 billion baht in Thai stocks from the year's start until May 9.

 

Expectations of a current account surplus during the 90-day US trade truce and favourable US-Thai trade agreements could bolster exports and aid Thailand's economic recovery this year.

 

Ariya Tiranaprakit, Deputy Managing Director of the Thai Bond Market Association (ThaiBMA), views the current fund flow situation in the bond market as normal market dynamics.

 

She emphasised the stability of the Thai bond market, with foreign net purchases of over 70 billion baht since the year's beginning until yesterday, and anticipates continued inflows due to Trump's policies creating higher market volatility.

  

Piriyapon Kongvanich, Head of Fundamental Analysis at Bualuang Securities Plc., confirmed the continuous flow of over 70 billion baht into Thai bonds since the year's start, confirming these are not 'hot money' flows.

 

While foreign investors are expected to alternate between buying and selling, the primary trend remains 'buying' until the impact of US inflation becomes clearer in the next one to two months.

 


"Should Thai interest rates be expected to fall more than US interest rates in the future, we might see some 'selling of Thai bonds' given the substantial purchases already made," Piriyapon explained. "However, the overarching trend is likely to remain 'buying Thai bonds' due to concerns about US tax measures potentially increasing inflation and preventing the Fed from cutting rates."


 

Ratasak Piriyanont, Senior Director at Kasikornthai Securities Plc., noted that May's fund flows remain volatile, but the baht is strengthening as the US dollar weakens amid concerns that the US may not conclude trade agreements within the 90-day timeframe.

 

He also anticipates that accelerated export sales before US tariff hikes could further support the baht. He recommends stocks that benefit from a stronger baht, such as petrochemical, energy, power generation, and transport sectors.

 

He advises a defensive and cautious strategy given the sharp recovery in both Thai and global equities since the US announced a 90-day delay in import tariffs, with trade agreement progress remaining unclear for Thailand.

 

The Thai stock market is projected to trade sideways or downward, facing stiff resistance at 1,200 and 1,215 points without clear positive catalysts.

 

Amonthep Chawla, Assistant Managing Director and Head of Research at CIMB Thai Bank Plc., regards the strengthening baht as a concerning sign, with a likelihood of further appreciation to 32 baht per dollar or lower due to potential renewed investor interest in the currency.

 

He highlighted that Thailand's role as a regional gold trading hub is another key factor pushing the baht stronger than its regional peers.

 

Surging global gold prices prompt domestic investors to sell for profit, creating an unusual demand for the baht and directly strengthening the currency. While this is a temporary situation, it has widespread implications.

 

Amonthep believes a strong baht could significantly impact the Thai economy, given its reliance on exports. As exports are currently the primary growth engine, a strong currency makes Thai goods less competitive, harder to sell, and reduces profits for exporters, potentially affecting the overall economy in the future.

 

Furthermore, a strong baht heavily impacts the agricultural sector, which relies on export income from key crops like rice, rubber, palm oil, and tapioca. This could lead to a sustained decline in farmers' incomes, exacerbating the fragility of the Thai economy, which already faces stagnant domestic income and sluggish purchasing power.

 


"Nonetheless, we believe that despite the short-term strength of the baht, there's a possibility the situation won't be prolonged. We may see a reversal and the baht weakening in the future amidst global monetary policy uncertainties," Amonthep concluded.


 

Pichai Naripthaphan, Minister of Commerce, commented on the strong baht, stating that despite its strength, exports are performing well.

 

He noted that the Thai economy is progressing positively, with Q1 GDP growing by 3.1% and exports expanding by 15.2% in the first quarter, including a 17.8% surge in March.

 


"The April export figures, to be released on May 26, are also very strong, reflecting the potential of the Thai economy," Pichai added. 


 

He confirmed that the Ministry of Commerce will continue pursuing Free Trade Agreements (FTAs) with several more countries, including the EU, South Korea, and Canada, to diversify risks and enhance opportunities for Thai businesses.

 

However, he expressed a desire for the Bank of Thailand governor to manage the baht's exchange rate appropriately, suggesting that the current level of 32 baht per dollar is too strong and that a more suitable range would be 36-37 baht per dollar.

 

Meanwhile, CLSA (Thailand) Securities highlights several critical events on the horizon that could impact the stability of the coalition government and, consequently, the direction of the Thai stock market.

 

These include the upcoming debate on the 2027 annual budget bill, the court's decision on former Prime Minister Thaksin Shinawatra's bail, and allegations of corruption surrounding the Senate elections. The convergence of these issues is expected to test the resilience of the coalition and could trigger substantial shifts in the political landscape.

 

 



 

Emerging Markets: The Next Bull Run?

Bank of America, led by investment strategist Michael Hartnett, has indicated a renewed interest in stock markets within emerging market countries.

 

This follows a fresh momentum behind the 'sell US assets' or 'Sell America' trend, ignited by Moody's Ratings' recent downgrade of the US credit rating from its top tier.

 

Bank of America is the latest to declare emerging markets as the "next bull market." JPMorgan had previously signalled a similar sentiment on Monday, upgrading its investment weighting for emerging market equities from 'neutral' to 'overweight', citing easing US-China trade tensions and appealing valuations.

 


"A weaker US dollar, surging US bond yields, a recovering Chinese economy... nothing beats emerging market stocks," Bank of America's team conveyed in a note to investors.


 

The decline in confidence towards US assets, which began last month with sell-offs in US bonds, equities, and the US dollar, has fueled an upward trajectory for emerging markets.

 

The MSCI Emerging Markets Index, tracking large and mid-cap stocks across 24 emerging nations, has climbed 8.55% this year, significantly outperforming the US S&P 500 Index's 1% gain over the same period.

 

This divergence became even more pronounced in the weeks following April 2, when US President Donald Trump announced retaliatory tariffs against both allies and adversaries.

 

While most benchmark indices generally fell globally in the immediate days after April 2, the subsequent week, from April 9-21, showcased a clear distinction: the S&P 500 declined by over 5%, whereas the MSCI Emerging Markets Index advanced by 7%.

 

Although US stock and bond markets have experienced a slight recovery since then, Moody's recent US credit downgrade has reignited investor concerns.

 

On Monday, the yield on 30-year US Treasury bonds surged above 5%, reaching levels not seen since November 2023, while US equities simultaneously halted a six-day winning streak on Tuesday.

 

Malcolm Dorson, Head of Active Strategies at Global X ETFs, stated that recent events underscore the necessity for greater geographical risk diversification.

 


"After underperforming the S&P Index for the past decade, EM stocks are now uniquely positioned and are set to outperform in the next cycle," Dorson remarked. "This potential 'perfect storm' is driven by a potentially weaker dollar, very low investor positioning, and low valuations combined with accelerating growth."


 

According to Dorson's data on trading positions, a significant number of US investors hold only 3-5% in emerging market stocks, compared to 10.5% in the MSCI Global Index, which encompasses the performance of large and mid-cap companies in 23 developed markets.

 

JPMorgan's statistics further reveal that emerging markets are still trading at a price-to-earnings (P/E) ratio of 12 times, making them unusually cheaper compared to developed markets.

(2025/05/23-00:00)