KBank Capital Market perspectives Dec 30 flooding and economic slowdown in november

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KBank Capital Market perspectives Dec 30 flooding and economic slowdown in november

  1. 1. KBank Capital Market Perspectives Market Updates Macro / FX / Rates Thai economy contracted sharply in November 2011 from the 30 December 2011 historic severe flooding effect November economic indicators Puttikul Ackarachalanonth – Kasikornbank Economy slowdown due to flooding impact across all economic sectors as well as the slowdown in Puttikul.a@kasikornbank.com global economy - Economic indicators for November were adversely affected by the historic severe flooding effect in all sectors amid slowdown in global economy. BOT said the flooding situation may affect 2011 GDP growth which was expected to grow 1.8% in the prior forecast. However, BOT did not expect 2011 GDP to turn negative. Last month, BOT revised the economic growth for this year downward to 1.8% from the prior forecast of 2.6% in October due to the slowdown in economy in Q4/2011 from the severe flooding situation. - Production side: Production continued to drop in most of the sectors as the manufacturing plants temporarily shutdown due to direct and indirect effects from the flooding situation. Manufacturing Production Index (MPI) dropped by 48.6% YoY. The most affected industries were vehicles (-84% YoY), hard disk drive (-81.6% YoY) and integrated circuit (-75.5% YoY). For the agricultural side, agricultural production decreased by 7.2% YoY due to decrease in rice production that was damaged by the flooding. Meanwhile, rubber and oil palm production continued to increase from the expansion of the planting areas. In November, farm income dropped by 8.6% YoY with 1.5% decline in agricultural price. Agricultural price mainly declined as rubber price decline from the concern in global economy slowdown, production of several automobile manufacturers’ disruption from the floods and increase in global supply. - Consumption side: Private Consumption Index (PCI) decreased from 135.8 in October to 135.1 in November, especially from the contraction in the indicator for domestic automobile sales (-55.8% YoY). The investment side showed the same picture. Private Investment Index (PII) decreased from 198.9 in October to 186.4 in November from the shrinkage in the production sector. Imports of capital goods declined in almost all product categories and commercial car sales dropped from temporary shutdown of the automobile industry. - Confidence: Business Sentiment Index (BSI) in November increased from 36.7 in October (the lowest level since early 2009) to 39.0 in November. However, BSI in November was still lower than September’s level of 48.5. The indicator for next 3 months’ outlook surveyed in November was 54.4, higher than 42.9 in October survey. Business sentiment index, current assessment and 3mManufacturing Production Index (MPI) outlook % yoy % 50 = neutral 40 70 60 30 20 65 55 10 60 50 0 -10 55 45 -20 50 40 -30 -40 45 35 -50 -60 40 30 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Manufacturing production index ISIC (% yoy, left) Capacity Utilization (% , right) BSI BSI 3m forward expectationsSource: Bloomberg, KBank Source: CEIC, KBank 11 1
  2. 2. - Export value dropped by 13.1% YoY in November, amounting to USD15.3bn. This was the lowest export value since July 2010 due to manufacturing contraction from the flooding situation. Moreover, export of computer and integrated circuit dropped from slowdown in global economy, especially in the U.S. and the euro area. - Import value dropped by 1.9% YoY in November, amounting to USD15bn. This resulted from the decline in the electronic component, raw material used in the chemical and plastic industries as well as the decrease in electrical machinery due to the shrinkage in the production sector. - This resulted in the reduction in the trade balance. Trade balance in November was only USD218m, compared to the trade surplus of USD1.01bn in October. Baht is weakening the most against the USD comparedExternal sector balances to regional counterparts US$, mn CNY 1.3% 6000 TWD Change against USD, 1 month 0.2% 5000 JPY 0.1% 4000 MYR 0.1% 3000 2000 PHP -0.5% 1000 KRW -0.9% 0 IDR -1.0% -1000 SGD -1.4% -2000 INR -2.0% -3000 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 THB -2.5% Trade balance Services and transfers Balance of Payments -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5%Source: Bloomberg, KBank Source: Bloomberg, KBank Outlook for USD/THB - Thai baht is seen weakening the most against the US dollar compared to regional counterparts in December and weakening the most during the last week of December due to month-end demand for the U.S. dollar. - USD/THB opened at 30.85 this month and closed at 31.73 yesterday, traded at the highest level of this year during these two days amid the thin volume as the end of the year is approaching. - In 2012, we expected USD/THB to trade in the range of 30.50-33.00 in the first half of 2012 from the volatility of the euro-zone crisis which yet seem to be resolved. - However, when the euro-zone comes out with attractive solutions to keep every member in the EMU while its debt problem is gradually resolved, capital flows are seen to come to Asia again. In addition, the U.S. is likely to re-introduce its quantitative easing (QE3) as an effective mechanism to monetize its debt following a continual depreciation of the U.S. dollar. Consequently, we are likely to see a downward bias of the USD/THB, which is projected to reach 29.5 at the end of 2012. 22 2
  3. 3. Table 1. Monthly Key Economic Indicators Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11Manufacturing index 179.7 182.9 193.9 185.7 196.1 188.2 132.8 99.2 % YoY -8.1 -3.7 3.8 -0.7 6.8 -0.3 -30.1 -48.6Industrial capacity utilization rate (%) 54.4 58.8 64.1 63.1 65.0 65.5 46.5 40.1Retail sales (% YoY) 6.1 6.0 6.0 13.5 16.9 n.a. n.a.Total vehicle sales (units) 67,283 55,851 70,259 72,902 79,043 87,012 42,873 25,664Motorcycle sales (units) 174,244 163,411 205,392 169,320 194,691 170,954 123,584Unemployed labor force (000 persons) 285 204 163 206 270 295 219Unemployment rate 0.8 0.5 0.4 0.5 0.7 0.8 0.6Consumer prices (% YoY) 4.04 4.19 4.06 4.08 4.29 4.03 4.19 4.19 core 2.07 2.48 2.55 2.59 2.85 2.92 2.89 2.90Producer prices (% YoY) 6.6 6.2 4.5 5.2 6.0 5.6 4.2 3.5External Accounts (USD mn, unless specified otherwise)Exports 17,243.0 19,284.0 20,816.0 21,098.0 20,940.0 21,259.0 17,019.0 15,287.0 % YoY 25.0 17.3 16.4 36.4 28.5 18.4 -0.1 -13.1Imports 15,932.0 17,098.0 17,017.0 16,546.0 20,235.0 18,840.0 16,006.0 15,068.0 % YoY 26.2 34.5 23.6 13.2 45.9 42.6 20.6 -1.9Trade balance 1,311.0 2,186.0 3,799.0 4,552.0 705.0 2,419.0 1,013.0 219.0Tourist arrivals (000) 1,506 1,376 1,485 1,515 1,721 1,490 1,409 1,213 % YoY 35.9 68.8 56.3 23.2 36.0 23.0 4.0 -100.0Current account balance -350.0 -656.0 2,402.0 3,438.0 -697.0 404.0 39.0 -136.0Balance of payments 3,570 -2,600 -972 541 -556 -1,674 -1,886 -1,506FX reserves (USD bn) 189.9 186.2 184.3 187.6 189.4 180.1 183.9 176.4Forward position (USD bn) 21.4 23.5 24.4 26.4 26.3 27.3 28.9 30.4Monetary conditions (THB bn, unless specified otherwise)M1 1,347.0 1,395.8 1,336.6 1,336.3 1,345.2 1,328.0 1,362.7 1,363.5 % YoY 13.9 10.6 13.3 13.9 13.9 13.0 13.0 10.4M2 12,497.9 12,577.2 12,614.4 12,799.5 12,875.3 12,913.9 13,152.9 13,325.0 % YoY 15.4 14.3 16.3 17.6 17.4 16.2 16.1 15.9Bank deposits 10,980.6 11,092.8 10,993.2 11,077.8 11,153.5 11,082.3 11,359.7 11,455.0 % YoY 10.1 8.4 10.1 11.1 11.4 9.8 11.3 10.3Bank loans 10,376.2 10,517.7 10,679.1 10,718.9 10,899.7 11,071.9 11,207.8 11,308.7 % YoY 15.4 15.6 16.1 16.3 17.2 17.4 17.0 16.0Interest rates (% month end)BOT 1 day repo (target) 2.75 2.75 3.00 3.25 3.50 3.50 3.50 3.25Average large banks minimum lending rate 6.75 6.75 6.87 7.13 7.19 7.25 7.25 7.25Average large banks 1 year deposit rate 1.86 1.86 2.03 2.16 2.28 2.41 2.41 2.41Govt bond yield 1yr 3.00 3.15 3.50 3.64 3.48 3.57 3.32 3.20Govt bond yield 5yr 3.38 3.50 3.78 3.86 3.42 3.60 3.23 3.26Govt bond yield 10yr 3.70 3.79 3.91 4.02 3.51 3.75 3.38 3.42Key FX (month end)DXY US dollar index 72.93 74.64 74.30 73.90 74.12 78.55 76.17 78.38USD/THB 29.88 30.32 30.73 29.76 29.93 31.19 30.71 30.87JPY/THB 36.80 37.17 38.13 38.76 39.06 40.50 39.29 39.80EUR/THB 44.24 43.64 44.56 42.84 43.01 41.76 42.56 41.51Source: Bloomberg333
  4. 4. Disclaimer For private circulation only. The foregoing is for informational purposes only and not to be considered as an offer to buy or sell, or a solicitation of an offer to buy or sell any security. Although the information herein was obtained from sources we believe to be reliable, we do not guarantee its accuracy nor do we assume responsibility for any error or mistake contained herein. Further information on the securities referred to herein may be obtained upon request.444

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