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KBank Econ update jan 2012

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  • 1. ECONOMICUPDATE Capital Markets Research 4 January 2012 Thai Economic Update November Economic Data Nalin Chutchotitham nalin.c@kasikornbank.com • SET index closed lower in 2011 as European debt crisis worsens; Thai baht among the Puttikul Ackarachalanonth puttikul.a@kasikornbank.com weakest in the region in December • Farm income index declined from the decrease in rice production • Manufacturing production declined in November due to direct and indirect effects in the production from the floods • Private consumption index dropped to the lowest level for this year and private investment declined significantly • Exports and imports dropped which result in lower trade surplus and current account deficit • Bond yields rebounded towards the end of December upon news of large bond issuance December Inflation Data • Headline inflation declined to 3.53% after flooding conditions improved and caused prices of food and transportation • Core inflation lowered to 2.66% from 2.90% • Deposit rates and lending rates remained largely unchanged in December 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. Page 1 of 6
  • 2. Economic Update Monthly Economic Data SET index closed lower in 2011 as European of expectation that China would continue its stronger- debt crisis worsens; Thai baht among the yuan policy to boost domestic demand and yuan’s flexibility and usage in the financial markets. At the same weakest in the region in December time, Thai baht was deemed less attractive due to the floods (affecting foreign investments and exports growth) 1200 as well as the decline in policy rate. Meanwhile, imports 1107.36 1144.14 1100 of gold (after gold price hit several months’ low in 1025.32 December) by local investors also played a part in driving 1000 the Thai baht weaker. 900 855.45 800 2000 72 737.28 73 700 1900 74 600 1800 75 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 76 1700 77 SET Index 78 1600 79 SET index saw much volatility in the year 2011 compared 80 1500 to the year 2012, mainly due to uncertainties in the global 81 financial markets and doubts about the continuity of 1400 82 Jun-11 Aug-11 Oct-11 Dec-11 global economic growth. The index closed at 1032.76 in the year 2010 and 1025.32 in the year 2011. A major Gold ($/ounce, LHS) Dollar Index (RHS, inverted) slump was observed in September-October period when the risk of the euro-zone breaking up was escalating and Farm income index declined from the European leaders lacked a credible plan to ameliorate decrease in rice production the situation. In any case, SET index found support from local investors from the tax-saving LTF and RMF Agricultural production decreased by 7.2% YoY due to purchases towards year-end. decrease in rice production that was damaged by the $ mn Foreign net buy in SET (year-to-date, $ mn) flooding. Meanwhile, rubber and oil palm production 2000 continued to increase from the expansion of the planting 1500 areas. In November, farm income dropped by 8.6% YoY 1000 with 1.5% decline in agricultural price. Agricultural price 500 mainly declined as rubber price decline from the concern in global economy slowdown, production of several 0 automobile manufacturers’ disruption from the floods and -500 increase in global supply. -1000 -1500 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Manufacturing production declined in November due to direct and indirect effects in The degree of volatility in the SET index can be observed the production from the floods from the foreign net-buying value as well. Throughout the % yoy % year, year-to-date net-buying value had swung from a 40 70 low of – USD1,229mn to a high of USD 1,082mn. At 30 20 65 year-end, foreign investors had sold USD167mn of local 10 60 stocks, compared to the net-buy position of USD2,687mn 0 as of end-2010. -10 55 -20 -30 50 -40 45 JPY 1.5% Change against USD, 1 month, -50 CNY 1.1% -60 40 as of end 4th Jan 2012 MYR -0.1% Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 TWD -0.4% Manufacturing production index ISIC (%yoy, left) Capacity Utilization (%, right) SGD -0.6% IDR -1.2% PHP -1.3% Production continued to drop in most of the sectors as KRW -1.6% the manufacturing plants temporarily shutdown due to THB -2.4% direct and indirect effects (supply chain disruotpion) from INR -2.9% the flooding situation. Manufacturing Production Index -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% (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). The performance of Thai baht was one of the weakest in Following the declining MPI, capacity utilization in the region for the month of December. Notably, Asian November declined from October to 40.1. currencies were mostly weakening against the U.S. dollar as investors sought refuge in the traditional safe haven assets, including the dollar and the yen. Only the Chinese yuan managed to continue gaining on the back 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. Page 2 of 6
  • 3. Economic Update Private consumption index dropped to the Exports and imports dropped, resulting in a lowest level for this year and private lower trade surplus and a current account investment declined significantly deficit % YoY Index % yoy 10 150 80 8 145 60 6 140 135 40 4 130 20 2 125 0 0 120 -2 115 -20 -4 110 -40 -6 105 -8 100 -60 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 PCI Growth (left axis) Private Consumtption Index (sa, right axis) Exports Imports Private Consumption Index (PCI) decreased from 135.8 Export value dropped by 13.1% YoY in November, in October to 135.1 in November, especially from the amounting to USD15.3bn. This was the lowest export contraction in the indicator for domestic automobile sales value since July 2010 due to manufacturing production and VAT. A decline in domestic automobile sales was contraction. Moreover, exports of computer and due to the shortage of the supplies in the car production integrated circuit dropped on the back of the slowdown in while VAT declined from the reduced consumption in global economy, especially in the U.S. and the euro area. products and services. Compared to the same period last year, PCI decreased 1.6% and decreased 0.5% from the Import value dropped by 1.9% YoY in November, previous month. amounting to USD15bn. This resulted from the decline in the electronic component, raw material used in the PII PCI chemical and plastic industries as well as the decrease in 180 150 electrical machinery imports due to the shrinkage in the 170 145 production sector. 160 150 140 US$, mn 140 135 6000 130 130 5000 120 4000 110 125 3000 100 120 2000 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 1000 0 Private Investment Index (sa, left axis) Private Consumtption Index (sa, right axis) -1000 -2000 -3000 The investment side showed the same picture. Private Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Investment Index (PII) decreased from 198.9 in October to 186.4 in November from the shrinkage in the Trade balance Services and transfers Balance of Payments production sector. Imports of capital goods declined in almost all product categories and commercial car sales This resulted in the reduction in the trade balance. Trade dropped from temporary shutdown of the automobile balance in November was only USD218m, compared to industry. the trade surplus of USD1.01bn in October. Income and service account registered a deficit at USD355m even 50 = neutral Thai Business Sentiment Indices though there was an increase in the transfer receipt from 60 foreign insurance companies to the local insurers 55 regarding to the flood damage. This, together with the 50 lower trade surplus, resulted in the current account deficit of USD136m. Capital and financial account in November 45 reported a deficit of USD1.38bn, mainly from the 40 repayment of short-term loan of the commercial banks. 35 Balance of Payment in November registered a deficit of 30 USD1.5 resulting in the forth month of the deficit Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 continually. BSI BSI 3m forward expectations Foreign tourist arrival was 1.2 million people, decreased by 17.5% yoy This was due to the decline of foreign Business Sentiment Index (BSI) in November increased tourist arrival in almost all of the countries – especially from 36.7 in October (the lowest level since early 2009) from ASEAN, China, India and Japan. The seasonally- to 39.0 in November. However, BSI in November was still adjusted foreign tourist arrival in November dropped lower than September’s level of 48.5. The indicator for 21.3% from October’s level due to the trip cancellations next 3 months’ outlook surveyed in November was 54.4, when many parts of Bangkok were flooded. However, higher than 42.9 in October survey. hotel occupancy rate did not shrink, mainly because of temporary residential evacuation from flooded areas which offset the reduction in hotel occupancy from the decline in foreign tourist arrival. 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. Page 3 of 6
  • 4. Economic Update % Government bond yield curve 2,000 75 3.50 70 1,800 3.40 65 1,600 60 3.30 55 3.20 1,400 50 3.10 1,200 45 3.00 40 1,000 2.90 35 800 30 2.80 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 6m 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y Tourist arrival (000 left axis) Hotel occupany rate (right axis) 30-Dec-11 20-Dec-11 30-Nov-11 TTM The market has priced in a larger bond supply in Q1 – THB108bn is announced during the last week of the year Inflation rate declined significantly in while the Finance Ministry also said that another December after flooding conditions improved THB53.5bn of supply would likely be added once the Headline consumer price index (CPI) declined by 0.48% FY2012 budget bill becomes law in February. This is mom in December, indicating that price pressure has much larger than issuance during the past few quarters, eased more than expected and the headline inflation rate even if we skip the Oct-Dec 2011 period where issuance is down to 3.53% from 4.19% in November. For the year was merely THB32bn. At the same time, investors are 2011, inflation rate averaged at 3.81%, in line with the also aware that issuance during the second half of fiscal forecast of the Ministry of Commerce. year is not any less. Taking into consideration the planned issuance of THB540bn of government bonds % Headline CPI mom Headline CPI yoy 5.0 (LBs and FRBs only, not including saving bonds) in total 4.5 for the year, we are likely to be left with THB320bn of 4.0 issuance in Q3 and Q4. Despite the high level of liquidity, 3.5 3.0 it is likely that the yield curve would continue to steepen 2.5 going forward. The issuance of LB540bn of government 2.0 1.4 1.5 bonds do take into consideration THB400bn of planned 1.0 0.5 0.4 0.5 0.3 0.1 0.2 0.4 budget deficit and about THB340bn of debt restructuring, 0.5 0.2 0.2 0.0 0.2 0.2 0.2 0.2 0.0 but had not taken into consideration the cabinet’s plan to -0.5 -0.1 borrow an additional THB200bn via an emergency -0.3 -0.5 -1.0 decree (not finalized so far). In any case, government Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 funding needs is likely to be hefty for the year and the market may not like it much although the room for There were several conditions at play in December. First government’s borrowing over the long-run remains of the all, retail oil prices had declined in line with the fall substantial, with the public debt to GDP ratio standing at of world crude oil prices. Meanwhile, flooding conditions 41.03 as of end October. in Thailand had ameliorated and supply of necessary goods and food began to return to normal. Transportation Deposit and lending rates stayed unchanged costs had also reduced due to the above reasons. while growth of loans and deposits slowed Notably, the CPI for raw food and energy items declined down by 1.94% mom in December while the CPI for food and beverages fell by 1.20%. % 4.5 Meanwhile, the core inflation rate (excluding raw food 4.0 and energy items) was at 2.66% in December, a 3.5 deceleration from November’s level at 2.90%. For the whole year, core inflation rate averaged at 2.36%. 3.0 2.5 Bond yields rebounded towards the end of 2.0 1.5 December upon news of large bond issuance 1.0 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 In December, bond yields declined by 5-13bp across the Repo rate 12m deposit rate MLR - 4% curve when compared to their levels as of end- November. The fall in 4-year yield was as much as 31bp The 4 large banks’ average 1-year time deposit rate and during mid-month as global markets turned to safer minimum lending rate (MLR) remained unchanged in assets such as bonds and the local market was December at 2.74% and 7.25%, respectively. This was expecting low levels of bond issuance in the coming despite of the 25bp rate cut by the BoT on November quarter due to the delay in the FY2012 budget bill. Yet, th 30 . towards the end of the month, yields rebounded and the yield curve steepened somewhat, driving the 2-10 spread Commercial banks had to keep their deposit rates to 24bp from 21bp as of end-November. competitive with the state-own banks. Due to the upcoming government’s projects and increased financing needs for reconstruction efforts, state-own banks had been offering attractive returns for depositors in order to amass sufficient funds. As for lending rates, they had to 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. Page 4 of 6
  • 5. Economic Update be kept high on increased credit risks (due to poorer economic outlook) and the unchanged deposit rates as well. In any case, there is a high chance that both deposit and lending rates would fall should the policy rate be reduced to 3.00% (according to our forecast) as of end- January. % yoy 14 12 10 8 6 4 2 0 -2 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Private credit Private deposits M2 Private credit growth moderated to 16.0%yoy in November from 17%yoy in the previous month. Meanwhile, deposit growth remained strong but slowed down to 10.3% yoy from 11.3%. 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. Page 5 of 6
  • 6. Economic Update Bank of Thailand Data Table 2011 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 The Real Sector (%yoy , unless specified otherwise) Manufacturing Production Index, seasonally adjusted (level) 182.9 193.9 185.7 196.1 188.2 132.8 99.2 Manufacturing Production Index, without seasonal adjustment (level) 178.1 201.6 188.9 196.1 200.8 133.7 97.9 Manufacturing Production Index, without seasonal adjustment -3.7 3.8 -0.7 6.8 -0.3 -30.1 -48.6 Industrial Capacity Utilization (%) 58.8 64.1 63.1 65.0 65.5 46.4 40.1 Private Consumption Indicators (%yoy) Retail Sales (at 2002 prices) 6.1 6.1 6.1 13.5 11.3 -3.0 n.a. Passenger Car Sales (units) -15.2 -0.5 12.2 26.4 29.4 -38.8 -62.1 Motorcycle Sales (units) 14.7 22.9 0.4 26.1 16.4 -14.1 -22.4 Imports of Consumer Goods (at 2000 prices) 14.4 4.2 9.5 17.1 15.7 2.7 0.2 Private Investment Indicators Commercial Car Sales (units) -6.2 -0.3 10.1 15.7 25.7 -41.8 -71.5 Imports of Capital Goods (at 2000 prices) 9.2 8.9 10.4 17.0 5.5 1.3 -5.2 Cement Sales (tons) -3.2 3.7 6.6 11.8 11.4 10.2 -2.2 Government Cash Balance (billions of baht) 13.9 178.7 -38.6 -9.8 95.6 -64.9 -28.6 Consumer Price Index 4.19 4.06 4.08 4.29 4.03 4.19 4.19 Food 8.38 7.76 7.17 8.43 8.84 9.86 10.21 Non-Food 1.69 1.81 2.21 1.77 1.07 0.75 0.54 Core Inflation (excluding raw food and energy) 2.48 2.55 2.59 2.85 2.92 2.89 2.90 External Accounts (Millions of US$, unless specified otherwise) Exports 19,284 20,384 21,098 20,940 21,259 17,019 15,287 ( % yoy) 17.3 14.0 36.4 28.4 18.4 -0.1 -13.1 Imports 17,098 17,017 16,546 20,235 18,840 16,006 15,068 ( % yoy) 34.5 23.6 13.2 45.9 42.6 20.6 -1.9 Trade Balance 2,186 3,366 4,552 705 2,419 1,013 218 Current Account Balance -656 1,969 3,438 -697 404 39 -136 Capital Account -65 0 0 -40 34 0 0 Financial Account -294 -2,304 -2,496 161 317 -1,459 -1,381 - Monetary authority (central bank) -2,048 -448 2,316 -1,451 -755 -307 -392 - Government 236 23 873 922 6 67 165 - Other depository corporations (banks) 1,534 -178 -5,708 883 3,866 -4,103 -3,653 - Others -16 -1,700 23 -193 -2,800 2,884 2,498 Balance of Payments -2,600 -972 541 -556 -1,674 -1,886 -1,506 Official Reserves (billions of US$) 185.5 184.9 187.6 188.3 180.1 182.0 178.3 Monetary Statistics (End of period) (Billions of baht) Monetary Base 1,193.5 1,223.4 1,206.8 1,219.2 1,229.5 1,311.0 1,259.8 ( % yoy) 9.6 14.1 13.1 16.6 10.0 22.3 13.5 Narrow Money (M1) 1,395.8 1,336.6 1,336.3 1,345.1 1,328.0 1,362.7 1,363.5 ( % yoy) 10.6 13.3 13.9 13.9 13.0 13.3 10.4 Broad Money (M2) 12,577.2 12,614.4 12,799.4 12,875.3 12,913.9 13,152.9 13,325.0 ( % yoy) 14.3 16.3 17.6 17.4 16.2 16.2 15.9 Other Depository Corporations Deposits 11,092.8 10,993.2 11,077.8 11,153.5 11,082.1 11,364.3 11,455.0 ( % yoy) 8.4 10.1 11.1 11.4 9.8 11.3 10.3 Other Depository Corporations Private Credits 10,517.7 10,679.1 10,718.9 10,899.7 11,079.9 11,209.6 11,308.7 ( % yoy) 15.6 16.1 16.3 17.2 17.5 17.0 16.0 Interest Rates (% p.a.) Repurchase Rate, 1 day (closing rate daily average) 2.75 3.00 3.16 3.32 3.50 3.50 3.49 Overnight Interbank Rate (mode daily average) 2.62 2.90 3.06 3.22 3.40 3.41 3.39 Fixed Deposit Rate (1 year) 2.00-2.30 2.20-2.50 2.45-2.75 2.45-3.00 2.70-3.00 2.70-3.00 2.70-3.00 Prime Rate (MLR) 6.75-7.13 6.87-7.25 7.12-7.50 7.12-7.50 7.25-7.625 7.25-7.625 7.25-7.625 Exchange Rate (Baht : US$) 30.25 30.52 30.07 29.87 30.42 30.86 30.95 Source: Bank of Thailand 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. Page 6 of 6

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