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KBank Capital Market perspectives Nov 21.2011
KBank Capital Market perspectives Nov 21.2011
KBank Capital Market perspectives Nov 21.2011
KBank Capital Market perspectives Nov 21.2011
KBank Capital Market perspectives Nov 21.2011
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KBank Capital Market perspectives Nov 21.2011

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  • 1. KBank Capital Market Perspectives Market Updates Macro / FX / Rates Thai economy slowed down for the 5th straight quarter 21 November 2011 Overview: Puttikul Ackarachalanonth - Thailand’s economy in the third quarter grew by 0.5% (adjusted for seasonal puttikul.a@kasikornbank.com factors) from the second quarter with the year-on-year growth of 3.5%. The GDP in the third quarter rebounded from the second quarter when it contracted Nalin Chutchotitham nalin.c@kasikornbank.com by 0.2%qoq sa, as a result of the shortage of raw materials resulting from Tsunamis in Japan. The actual numbers were rather disappointing as analysts had expected a quarter-on-quarter expansion of 1.5% while the year-on-year growth rate was expected to be 4.5%, according to a survey by Bloomberg, - GDP growth in the third quarter resulted from the continuing growth in export, private investment and manufacturing sector. Export in the third quarter expanded by 27.3%, accelerated from 19.4% expansion in the second quarter. The main export products are plastic products (+30.6%), electrical appliances (+14.1%) and automobile (+10.8%). Private Investment expanded by 9.1%, compared to 8.6% in the second quarter as a result of the increase in both investment in machinery and equipment (+10.1%), as well as construction investment (+6.1%). Manufacturing sector grew by 3.1% after the contraction of 0.1% in the second quarter because of the recovery in the major manufacturing industries (automobile, hard disk drive and rubber and plastic products) in the aftermath of Tsunamis in Japan. - However, agricultural sector’s output reduced by 0.9%, compared to 6.7% expansion in the second quarter as a result of severe floods in the North, Northeast and Central regions of Thailand. Moreover, rubber production dropped due to heavy rainfall in the Southern region. Prices of major agricultural products (such as oil palm and rubber) also slowed down in the quarter. - Household consumption expanded at 2.4%, compared to 2.7% growth in the second quarter. This slowdown resulted from the flooding situation as consumers became more cautious of their future consumption under the flooding situation. - NESDB expects Thai economy to grow by 1.5% in 2011, revised down from 3.5-4.0% growth forecasted in August due to 2.3% contraction from the floods. Consumption, investment and export are expected to grow by 2.5%, 4.7% and 17.2% respectively. Current account surplus is forecasted to be 2.2% of GDP. Headline inflation is expected to be 3.8% while the unemployment rate is expected to be at 0.7%. Kasikorn Research Center forecasted a 1.7% growth for the year earlier this month.GDP Growth %YoY and %QoQ Contribution to GDP growth % % yoy/ contribution 15 15 10 10 5 5 2.7 3.5 2.8 2.3 1.8 1.1 0.5 0 0.2 -0.1 0 0 -5 Priv ate consumption Gov ernment C onsumption -5 -2.5 -10 Gross fix ed capital formation Inv entory change GDP yoy GDPsa qoq N et ex ports GDP y oy -10 -15 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11Source: NESDB, KBank Source: NESDB, KBank 11 1
  • 2. - The Bank of Thailand’s senior officials, including the governor, had expressed deep concerns about the impacts from the floods and are looking to revise down their own projection of the GDP forecast this year. In mid-October, the BoT forecasted this year’s growth to be 2.6% but officials said that the assumptions has yet to take into consideration of all of the affected industrial parks. Note in the figure below that the growth of domestic demand variables (private and public consumption, fixed capital formation) had continued to slow down during the past two quarters. With the deceleration of the global economy in mind, maintenance of domestic demand growth could be less robust going forward if flooding conditions are protracted. - Last week, the BoT governor also said that confidence is also important and the monetary policy committee would take into consideration that pace of output rebound and the need to restore confidence for the next policy decision on Nov th 30 . Consumer confidence index (surveyed by UTCC) dropped to its weakest level since May 2009 at 72.4 in October, when the September reading had been at 81.8. - In any case, the bond market has already priced in at least 25bp of policy rate cut. We expect the rate cut to be a one-off 50bp, noting that the next two MPC meeting are almost two months apart (the first in 2012 is Jan 25th). While the current policy rate of 3.50% is not high, compared to historical levels and inflation rates this year and the next (BoT latest forecast shows 3.5% in 2012), we expect a quicker and stronger response from the BoT, noting that monetary policy transmission takes several quarters to impact the real sector, especially when the level of interest rate is initially low. Government bond yields reflecting policy rate cutGrowth of domestic demand has slowed down expectation % yoy % Government bond yield curve 15 3.55 3.50 10 3.45 5 3.40 3.35 0 3.30 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 -5 3.25 3.20 -10 Private consumption 3.15 -15 Government Consumption 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y Gross fixed capital formation TTM -20 18-Nov-11 14-Oct-11Source: NESDB, KBank Source: Bloomberg, KBank Consumer confidence index and business sentimentAuto sales in October does not bode well for Q4 data index 000 000 120 60 60 100 110 55 50 80 100 50 90 40 60 45 80 30 40 40 70 20 20 35 60 10 0 50 30 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 04 05 06 07 08 09 10 11 Passenger car Commercial car Total car sales (right axis) consumer confidence index (LHS) Business sentiment index (RHS)Source: NESDB, KBank Source: Bloomberg, KBank 22 2
  • 3. Table 1. NESDB latest estimates (unit : % YoY or otherwise indicated) 2011 Forecast 2010 H1 Q3 2011 2012 GDP 7.8 3.0 3.5 1.5 4.5-5.5 Total investment 9.4 6.6 3.3 4.7 10.3 private 13.8 10.5 9.1 8.8 11.0 Public -2.2 -5.9 -10.9 -7.9 8.0 Total consumption 5.1 2.8 2.1 2.3 4.0 private 4.8 3.0 2.4 2.5 4.4 Public 6.4 1.4 1.1 1.2 2.0 Exports of goods (USD) 28.5 23.1 27.3 17.2 19.0 Exports volume 17.3 13.7 16.6 10.7 12.0 Imports of goods (USD) 36.7 27.7 33.4 27.2 25.0 Imports volume 26.5 19.1 24.4 16.7 17.0 Current account as % of 4.4 4.2 3.5 2.2 1.2 GDP Inflation rate 3.3 3.6 4.1 3.8 3.5-4.0 Unemployment rate 1.0 0.7 0.7 0.7 0.7 Source: NESDB333
  • 4. Table 2. Monthly Key Economic Indicators Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11Manufacturing index 198.2 165.3 178.1 201.6 188.9 196.1 200.4 - % YoY -6.7 -8.1 -3.7 3.8 -0.7 6.8 -0.51 -Industrial capacity utilization rate (%) 66.1 54.4 58.8 64.1 63.1 65.0 65.4 -Retail sales (% YoY) 17.4 14.8 15.8 16.5 15.7 15.7 - -Total vehicle sales (units) 93,008 67,283 55,851 70,259 72,902 79,043 87,012 42,873Motorcycle sales (units) 191,437 174,244 163,411 205,392 169,320 194,691 170,954Unemployed labor force (000 persons) 276 285 204 163 206 270 - -Unemployment rate 0.7 0.8 0.5 0.4 0.5 0.7 - -Consumer prices (% YoY) 3.14 4.04 4.19 4.06 4.08 4.29 4.03 4.19 core 1.62 2.07 2.48 2.55 2.59 2.85 2.92 2.89Producer prices (% YoY) 5.9 6.6 6.2 4.5 5.2 6.0 5.6 4.2External Accounts (USD mn, unless specified otherwise)Exports 21,072.0 17,243.0 19,284.0 20,816.0 21,098.0 20,940.0 21,259.0 - % YoY 30.7 25.0 17.3 16.4 36.4 28.5 18.4 -Imports 17,325.0 15,932.0 17,098.0 17,017.0 16,546.0 20,235.0 18,840.0 - % YoY 27.6 26.2 34.5 23.6 13.2 45.9 42.6 -Trade balance 3,747.0 1,311.0 2,186.0 3,799.0 4,552.0 705.0 2,419.0 -Tourist arrivals (000) 1,765 1,506 1,376 1,490 1,550 1,725 1,500 - % YoY 22.7 35.9 68.8 56.3 23.2 36.0 23.0 -Current account balance 1,692.0 -350.0 -656.0 2,402.0 3,438.0 -697.0 404.0 -Balance of payments 1,365 3,570 -2,600 -972 541 -556 -1,674 -FX reserves (USD bn) 181.5 189.9 186.2 184.3 187.6 189.4 180.1 181.7Forward position (USD bn) 20.8 21.4 23.5 24.4 26.4 26.3 27.3 28.7Monetary conditions (THB bn, unless specified otherwise)M1 1,345.6 1,347.0 1,395.8 1,336.6 1,336.3 1,345.2 1,327.8 - % YoY 13.8 13.9 10.6 13.3 13.9 13.9 13.0 -M2 12,284.4 12,497.9 12,577.2 12,614.4 12,799.5 12,875.3 12,912.5 - % YoY 13.2 15.4 14.3 16.3 17.6 17.4 16.2 -Bank deposits 10,891.6 10,980.6 11,092.8 10,993.2 11,077.8 11,153.5 11,081.6 - % YoY 9.0 10.1 8.4 10.1 11.1 11.4 9.8 -Bank loans 10,308.2 10,376.2 10,517.7 10,679.1 10,718.9 10,899.7 11,067.0 - % YoY 15.0 15.4 15.6 16.1 16.3 17.2 17.3 -Interest rates (% month end)BOT 1 day repo (target) 2.50 2.75 2.75 3.00 3.25 3.50 3.50 3.50Average large banks minimum lending rate 6.62 6.75 6.75 6.87 7.13 7.19 7.25 7.25Average large banks 1 year deposit rate 1.67 1.86 1.86 2.03 2.16 2.28 2.41 2.41Govt bond yield 1yr 2.83 3.00 3.15 3.50 3.64 3.48 3.57 3.32Govt bond yield 5yr 3.41 3.38 3.50 3.78 3.86 3.42 3.60 3.23Govt bond yield 10yr 3.75 3.70 3.79 3.91 4.02 3.51 3.75 3.38Key FX (month end)DXY US dollar index 75.86 72.93 74.64 74.30 73.90 74.12 78.55 76.17USD/THB 30.28 29.88 30.32 30.73 29.76 29.93 31.19 30.71JPY/THB 36.42 36.80 37.17 38.13 38.76 39.06 40.50 39.29EUR/THB 42.86 44.24 43.64 44.56 42.84 43.01 41.76 42.56Source: Bloomberg444
  • 5. 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.555

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