Risks have increased
In the previous article, we saw the monetary policy stance of the Bank of Thailand in December. The central bank maintained its projections on the nation’s economic growth for this year and the next. It stated that “the Committee viewed that the Thai economy remained on a recovery path with the overall growth momentum largely unchanged from the previous meeting.” The reference to ‘the Committee’ is to the central bank’s Monetary Policy Committee.
While keeping its projection of economic growth in Thailand unchanged, the central bank noted that the risks to economic growth were tilted to the downside, i.e., risks had increased.
Causes of increased risk to Thailand
Among the chief causes to risks to the Thai economy is the stance of the trade policy of the US in the upcoming Donald Trump administration. During his campaign speeches, Trump has been an advocate of trade protectionism and has championed the cause of the US over all others when it comes to trade treaties.
If this turns out to be the case after Trump takes office, then exports from Thailand would be hit, thus negatively impacting its economy. Another aspect which can hurt the nation’s trade is the economic state of its trading partners.
The central bank also cited reduced number of tourists from China, and worries about the financial sector in China (MCHI) and Europe as aspects which could hurt the domestic economy.
What about your investment in Thailand?
Unless you’re invested in the iShares MSCI Thailand Capped ETF (THD), you have a fifth or less of an Asia (ASEA) or emerging market-focused (PIE) ETF’s assets invested into stocks from the country. The THD has done well this year, having returned ~24% in YTD 2016.
Even after risks to the economy titled towards the downside, the Bank of Thailand has decided to maintain its interest rates. It wishes to give itself room to maneuver in case trade protectionism is put into practice by the US, thus hurting Thai exports.
The key policy rate has been unchanged since April 2015, and unless something untoward happens, it may remain at this level for some time. Given its macroeconomic credentials, your investment in Thailand does not seem to be at any major risk for now.