Capital Market Business's event aug 2011.thai final

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Capital Market Business's event aug 2011.thai final

  1. 1. KBank on Econ / FX / RatesAugust 2011 by Kobsidthi Silpachai, CFA Capital Markets Research 1
  2. 2. S&P ก F ก ก ก FF F ก AAA ก F F ก Fก F ก F ก F ก 2013 F ก F F ก ก F ก F F ก F ก ก F Fก F ก F F ก F 7% F ก กก ก F กก F F ก F ก F F ก F ก F ก ก F ก F ก F F กF ก ก F F F F F ก F ก ก ก F F ก กก F ก ( F FCY LCY) ก F F F F กF ก ก ก ก Fก ก F ก ก F F ก 3.25% F ก F Fก F F ก ก 2009 ก F ก F Fed / ECB F ก ก 2
  3. 3. QE3 F ก F QE1 QE2 ก F ก ก F ก ก ก ก F FQE3 ก F ก F F ก F F ก F F ก ก 2013 F F กF F 2 F F ก F F F F ก F F USD / THB 29.00 2011 28.00 2012 ก ก USD Fก F F ก ก F F ก กก F ก Fก ก F F ก F Fก ก ก ... ก: . GDP F = GDPF F F GDP F F ก F ก ก F ก F F F กก F GDP ก ก ก ก F . 4% ก ก ก F F ก 3
  4. 4. current 2010 1mth ago 3mth ago 6mth ago current 2010 CPI 1mth ago 3mth ago 6mth ago 2011e GDP 2011e GDP CPIAUSTRALIA 2.0 3.4 2.8 2.9 3.5 3.6 2.9 3.3 3.3 3.0BRAZIL 4.0 7.5 4.0 4.1 4.5 6.2 5.0 6.2 5.5 5.0CHINA 9.3 9.7 9.5 9.5 9.5 5.2 3.3 4.9 4.7 4.6COLOMBIA 5.0 4.3 4.9 4.5 4.4 3.3 2.3 3.3 3.5 3.1EUROZONE 2.0 1.7 2.0 1.7 1.6 2.7 1.6 2.7 2.5 2.0FRANCE 2.0 1.5 2.2 1.9 1.7 2.1 1.7 2.2 2.3 1.9GERMANY 3.4 3.6 3.4 2.8 2.5 2.3 1.2 2.3 2.3 1.7GREECE -3.6 -4.0 -3.6 -2.9 -2.7 3.1 4.7 3.1 2.2 1.2HONG KONG 6.0 6.6 5.4 5.3 4.5 5.0 2.4 5.0 4.5 3.7HUNGARY 2.5 1.0 2.6 2.6 2.8 4.1 4.9 4.0 4.0 3.8INDONESIA 6.5 6.0 6.4 6.4 6.4 6.0 5.1 6.0 6.8 6.7IRELAND 0.5 -0.4 0.1 0.2 1.5 1.3 -1.6 1.3 1.2 0.9ISRAEL 4.6 4.1 4.5 4.5 3.6 3.6 2.7 4.3 4.3 3.2ITALY 0.8 1.1 0.9 1.1 1.1 2.6 1.6 2.5 2.4 2.1JAPAN -0.7 4.3 -0.6 1.3 1.4 0.4 -0.7 0.4 0.0 -0.3KUWAIT 4.4 2.8 4.4 4.5 3.9 4.5 4.1 4.5 4.7 4.2MALAYSIA 5.0 7.0 5.5 5.5 5.1 3.3 1.7 3.0 3.1 2.8MEXICO 4.2 5.2 4.2 4.1 3.7 3.6 4.2 3.7 3.7 3.9PHILIPPINES 5.4 7.0 5.4 5.0 5.0 5.1 3.8 4.9 4.0 4.0PORTUGAL -1.9 1.6 -1.4 -1.2 -1.0 3.4 1.4 3.7 3.4 2.0RUSSIA 4.6 4.0 4.6 4.6 4.2 9.0 6.9 9.1 9.1 9.0SAUDI ARABIA 5.6 3.8 5.6 5.7 4.3 5.5 6.0 5.5 5.6 5.2SINGAPORE 6.0 14.9 6.0 5.2 5.2 4.5 2.8 3.2 3.2 3.2SOUTH AFRICA 3.6 2.8 3.6 3.5 3.5 4.9 4.3 4.9 4.6 4.6SOUTH KOREA 4.4 6.1 4.5 4.5 4.3 4.2 3.5 4.4 4.4 3.5SPAIN 0.7 -0.2 0.8 0.7 0.6 3.1 2.1 3.1 2.8 2.1SWITZERLAND 2.4 2.7 2.4 2.0 1.7 0.9 0.7 0.9 0.8 0.8TAIWAN 5.3 10.4 5.2 4.7 N/A 2.0 1.0 2.1 2.1 N/ATHAILAND 4.1 7.9 4.1 4.5 4.5 3.8 3.3 3.8 3.8 3.4TURKEY 5.4 8.1 5.3 4.6 4.6 6.6 8.6 6.5 6.3 6.3BRITAIN 1.2 1.6 1.4 1.5 1.9 4.4 3.3 4.5 4.3 3.6UNITED STATES 1.7 2.9 2.5 2.7 3.2 3.0 1.6 3.0 3.0 1.8 4
  5. 5. ก ก ก 5
  6. 6. ก ก% yoy 15 10 ก 2.6% 2 5 ก: 0 C= +1.5% G = +0.1% -5 I= +0.9% -10 Inv = +0.2% X M = +0.3% -15 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Private consumption Government Consumption Gross fixed capital formation Inventory change Net exports GDP yoy 6
  7. 7. ก ก ก 7
  8. 8. ก ก ( F ก ก ) 8
  9. 9. ก ก G7 This suggest that G7 economies make reported GDP in 2H15% about 50% of the world are likely to be 6% economy negative 5%10% 4% 3% 5% 2% 1% 0% 0% -1%-5% The G7 lead -2% indicators have been -3% negative for May and-10% June 2011 -4% -5%-15% -6% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 G7 lead indicators (left axis) G7 GDP (right axis) 9
  10. 10. ก (OECD) ก15% The lead indicators of the 15% OECD countries (34 in10% all) are nearly zero 10% 5% 5% 0% 0%-5% Thaksinomics helped us to avoid-10% the global slowdown in 2002 / -5% 2003, can we hope for a repeat?-15% -10% 00 01 02 03 04 05 06 07 08 09 10 11 OECD lead indicator, % YoY, left axis TH GDP, % YoY, right axis 10
  11. 11. ก 11
  12. 12. y = f(x), F กUS real GDP, 2005 dollars, bn1500013000 y = 141.07x - 1395.6 2 R = 0.972511000 9000 7000 OECD lead indicator explains 97% of historical moves in US 5000 GDP 3000 30 40 50 60 70 80 90 100 110 OECD lead indicators for US, index 12
  13. 13. ก F F 13
  14. 14. F ก ก 14
  15. 15. ก ก F 0.0% 15
  16. 16. F ก 16
  17. 17. F ก ก ก 17
  18. 18. ก ก ก140130120110100 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 119080 External sector/GDP, % 18
  19. 19. ก (OECD) ก F ก15.0% 40%10.0% 30% 20% 5.0% 10% 0.0% 0% -5.0% -10%-10.0% -20%-15.0% -30% 01 02 03 04 05 06 07 08 09 10 11 OECD lead indicator (left axis) Thai export volume, 3mth average, push back 6mths 19
  20. 20. ก (OECD) ก F15.0% 60% 50%10.0% 40% 5.0% 30% 20% 0.0% 10% 0% -5.0% -10%-10.0% -20% -30%-15.0% -40% 01 02 03 04 05 06 07 08 09 10 11 OECD lead indicator (left axis) Thai import volume (right axis) 20
  21. 21. F :กก F (currency debasement) 21
  22. 22. 2011 S&P F . F F + AAA/A-1 ก F ก ก F ก ก F F F กก F ก F F F F ก F ก F AAA F F ก ก ก ก กF F ก F F Fก ก F F Fก F F ก ก ก ก ก ก 2013 F ก ก F F ก F F ก F กF F AAA F 22
  23. 23. กก ก ก กF ก F ก 23
  24. 24. F F ก 24
  25. 25. ก . F F ก F AA + กAAA A-1+ ก Fก ก ก CreditWatchก F F ก F ก F ก ก ก F ก กก F F F F ก ก F F ก F F F F ก F ก ก F F กก F F ก Fก 18 2011 F F ก F ก ก F ก F F ก F F F ก F ก F FกF F F ก ก F AA F F ก Fก ก FF F กF ก F ก ก ก F F F กก F F 25
  26. 26. ก ก F... ก F? 26
  27. 27. 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 United 16,000 States China ก Japan Germany France GDP, USD bn United F Kingdom Brazil 1 Italy ก Canada India27
  28. 28. F F F 1 F ก3025201510 5 0 US CH JP UK HK CA FR BR IN GR AU SW SK TW share of world market equity cap, % 28
  29. 29. F 2 ก F 29
  30. 30. F กF F 30
  31. 31. กก ก ก Fก F F F1000 -900 If we start from Jan900 2000, the US has a -800 cumulative trade deficit -700800 with Japan of nearly USD 800 bn -600700 -500600 -400 …and Japan holds -300500 about USD 912bn in -200400 USTs -100300 0 00 01 02 03 04 05 06 07 08 09 10 11 JP UST holdings, left, USD bn cumulative trade deficit, right, inverted, USD bn 31
  32. 32. กก ก ก Fก F ก1400 If we start from Jan -2400 2000, the US has a -22001200 cumulative trade deficit -2000 with China of nearly -18001000 USD 2.1 trn -1600 800 -1400 …and China holds -1200 600 about USD 1.159 trn in -1000 USTs -800 400 -600 200 -400 -200 0 0 00 01 02 03 04 05 06 07 08 09 10 11 CH UST holdings, left, USD bn cumulative trade deficit, right, inverted, USD bn 32
  33. 33. F F ก UST holdings Japan 20.2% Others 35.2% ChinaThailand 25.7% 1.3% OPEC 5.1%Germany Taiwan UK 1.4% 3.4% 7.7% 33
  34. 34. ก ก S&P F 34
  35. 35. F ก downgrade? 1.80 1.60 1.40 1.20 1.00 0.80 0.60 S&P downgrades Japans AAA to AA+ on Feb 2001 0.40 …but yields goes down….. 0.20 0.00 Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- 01 01 01 01 01 01 01 01 01 01 01 01 BOJ policy rate, % 3mth JGBs, % 10yr JGB, % 35
  36. 36. ก ก F ก ก F290280270 BOJ pumps more JPY into the system, post downgrade260250240230 Jan- Feb- Mar- Apr- May- Jun- Jul-01 Aug- Sep- Oct- Nov- Dec- 01 01 01 01 01 01 01 01 01 01 01 Japan M1 money supply, JPY trn 36
  37. 37. ... ก F Japan M1 money supply, JPY trn600500400300200100 0 57 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11 Japan M1 money supply, JPY trn 37
  38. 38. Debt monetization F F ... ก F 38
  39. 39. ก F ก 39
  40. 40. y = f(x), ก ก (M1) F กUSD M1, USD bn 2200 y = 0.0808x + 695.842000 This is evidence of debt 2 monetization (converting R = 0.95221800 it to money). The more the US government borrows, the more the1600 Fed has to print money140012001000 4000 6000 8000 10000 12000 14000 16000 US national debt, USD bn 40
  41. 41. y = f(x), F ก (M1) F กUS CPI index300 y = 0.106x + 44.462250 2 R = 0.9397200150100 50 400 600 800 1000 1200 1400 1600 1800 2000 2200 US M1, USD bn 41
  42. 42. กก F = FกF F F F / ก F 7 6 5 4 3 2 1 0-1-2-3 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 10yr UST yield less inflation, % 42
  43. 43. +ก F =ก FกF F F( ) ก F( ) 8 6 4 2 0 -2 -4 -6 -8-10-12 00 01 02 03 04 05 06 07 08 09 10 11 FX return, CNY basis, % UST 10yr UST, % sum of yield and FX return 43
  44. 44. ก ก 44
  45. 45. ก ก EU ก USD bn1,000 PIIGS’ debt held by banks in other countries 800 600 400 200 0 Portugal Ireland Italy Greece Spain France Germany UK US Other 45
  46. 46. F ก 46
  47. 47. Price to book ratio: SET Bank index, TH3.503.002.502.001.501.00 96 97 98 99 000.500.00 Thai SET Bank index, price to book ratio 47
  48. 48. Price to book ratio: KBW Bank index, US2.502.001.501.00 07 08 09 10 110.500.00 KBW Bank index, price to book ratio 48
  49. 49. Price to book ratio: Euro Stoxx Bank Index2.502.001.501.00 98 99 00 01 02 03 04 05 06 07 08 09 100.500.00 Euro Stoxx Bank index, price to book ratio 49
  50. 50. ก F F F F ก กF ก 7%%8 Italy Spain Germany 7% line76543 The ECB is lending money to2 Italy and Spain by buying its bonds…or…it is recapitalizing1 the EU banks0Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 50
  51. 51. ก กก F3,000 ก F ก QE 22,5002,000 QE 11,5001,000 500 - 02 03 04 05 06 07 08 09 10 Feds balance sheet, USD bn ECB balance sheet, EUR bn 51
  52. 52. กF F ? This is reflects the transfer of burden from the tax payer in the US / EU to usCurrency mismatch is the main culprit…FCY asset….LCY liabilities 52
  53. 53. F F กF กก ก ? F 53
  54. 54. QE3 F F F FF F QE1 ก F Fก F กF F ก F ก ก ก F F ก ก F F ก QE2 F F ก ก F ก F ก ก ก ก ก F ก ก F F ก ก F F กF ก FF ก Fก F F ก ก ก ก 2013 QE3 ก ก กก F ก กF ก ก2 F ก F ก F F F ก F F 2009 กก F F F ก ก ก/ ก 54
  55. 55. F ก ก1,800,0001,600,0001,400,0001,200,0001,000,000 800,000 600,000 400,000 200,000 - 00 01 02 03 04 05 06 07 08 09 10 11 US excess reserves, USD mn 55
  56. 56. F ก ก ก F ก 7%Fed Funds rate, % 3.00 2.75 3 2 y = -0.0494x + 1.3823x - 12.661x + 38.166 2.50 2 7% looks to be R = 0.9348 2.25 2.00 the thresehold 1.75 before a credible The reverse path Fed Funds as a 1.50 reversal of function of unemployment rate 1.25 1.00 rising Fed 0.75 Funds 0.50 0.25 9.2 0.004.00 4.50 5.00 5.50 6.00 6.50 7.00 7.00 7.50 8.00 8.50 9.00 9.50 10.00 unemployment rate,% 56
  57. 57. ก ก F ก ก ก ก4.5 10.04.0 9.03.5 8.03.0 7.0 6.02.5 5.02.0 4.01.5 3.01.0 2.00.5 1.00.0 0.0 2011 2012 2013 2011 2012 2013 Real GDP - Fed Real GDP - Consensus Unemployment - Fed Unemployment - Consensus 57
  58. 58. y = f(x), F ก (M1) F ก FUSD/THB 48 46 44 y = -0.0193x + 66.055 42 40 R2 = 0.9464 38 36 34 without Sept 2006 to Dec 2008 period 32 30 28 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 2100 USD M1, bn 58
  59. 59. y = f(x), F ก (M1) ก USD / troy oz200018001600 y = 1.5239x - 1477.71400 2 R = 0.902212001000 800 600 400 200 0 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 2100 USD M1 money supply, bn 59
  60. 60. F F ก ก Fก ก F F Gold standard8000 18007000 16006000 1400 12005000 10004000 8003000 6002000 4001000 200 0 0 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 US M1 / US gold holding, USD per troy oz, left actual gold price, right 60
  61. 61. KBank USD/THB model KBank USD/THB model484644 We still hold onto our YE42 target of 29.0040383634323028 01 02 03 04 05 06 07 08 09 10 11 12 actual model 61
  62. 62. F FF F F? 62
  63. 63. y = f(x), F ก (M1) กTH CPI index 120 115 y = 0.0375x + 41.396 110 2 R = 0.9496 105 100 95 90 without Sept 2006 to Dec 2008 period 85 80 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 USD M1, bn 63
  64. 64. กก ก ก กTH CPI index 120 115 y = 0.0004x + 76.46 2 110 R = 0.9437 105 100 95 More exports to China more money in 90 Thailand higher inflation 85 Or less supply in Thailand higher inflation 80 20000 30000 40000 50000 60000 70000 80000 90000 100000 110000 CH nominal GDP, CNY bn 64
  65. 65. F ก ก F ก ก 3.0% 65
  66. 66. . ก F ก ก 3.0% 4/54 1/55Ranges: % 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 >3 45.0 60.0 63.0 29.0 32.0 24.0 16.0 22.0 2.5 3.0 35.0 22.0 20.0 19.0 19.0 17.0 13.0 14.0 2 2.5 18.0 13.0 12.0 22.0 21.0 21.0 17.0 17.0 1.5 2.0 2.0 4.0 4.0 19.0 17.0 20.0 20.0 18.0 1 1.5 - 1.0 1.0 9.0 8.0 12.0 18.0 15.0 0.5 1.0 - - - 3.0 2.0 4.0 11.0 9.0 0 <0.5 - - - - - 1.0 6.0 5.0 F F . F 215 240 F 66
  67. 67. F F F WTI Brent F F Dubai140130120110100 90 80 70 60 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 WTI Brent Dubai 67
  68. 68. F F F190 50170 45150 40 intervention, subsidies130 35110 30 90 25 70 50 20 30 15 10 10 00 01 02 03 04 05 06 07 08 09 10 11 Sing Gasoil, left Thai diesel, right 68
  69. 69. F F F% YoY % YoY 80 UN FAO food index, left axis 10 TH CPI index, right axis (pushed back 4mths) 8 60 6 40 4 20 2 0 0 02 03 04 05 06 07 08 09 10 11 -2-20 -4-40 -6 69
  70. 70. . F 3.50% ... F ... % 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 01 02 03 04 05 06 07 08 09 10 11 12 13 actual model 70
  71. 71. ก FS&P ก F ก ก ก FF F ก AAA ก F F ก Fก F ก F ก F ก 2013 F ก F F ก ก F ก F F ก F ก ก F Fก F ก F F ก F 7% F ก กก ก F กก F F ก F ก F F ก F ก F ก ก F ก F ก F F กF ก ก F F F F F ก F ก ก ก F F ก กก F ก ( F FCY LCY) ก F F F F กF ก ก ก ก Fก ก F ก ก F F ก 3.25% F ก F Fก F F ก ก 2009 ก F ก F Fed / ECB F ก ก 71
  72. 72. ก F QE3 F ก F QE1 QE2 ก F ก ก F ก ก ก ก F FQE3 ก F ก F F ก F F ก F F ก ก 2013 F F กF F 2 F F ก F F F F ก F F USD / THB 29.00 2011 28.00 2012 ก ก USD Fก F F ก ก F F ก กก F ก Fก ก F F ก F Fก ก ก ... ก: . GDP F = GDPF F F GDP F F ก F ก ก F ก F F F กก F GDP ก ก ก ก F . 4% ก ก ก F F ก 72
  73. 73. 73
  74. 74. Supply & Demand 101,our FX forecasting methodology 74
  75. 75. Money is the most basic commodity What is interest rates? It is the price (appreciation rate) of local money versus time What is exchange rates? It is the price of local money versus foreign money What is inflation? It is the depreciation rate of money…opposite of interest rates What determines the price of commodities…..local / foreign money? What determines the supply of local / foreign money What determines the demand of local / foreign money? How do we estimate the target of the exchange rate? 75
  76. 76. Supply and Demand: Basics of EconomicsPrice of USD This is the basics of the pricing of any Supply curve commodity It is based on supply and demand If you have the given supply and demand, the price of USD will be priced at P1 for a quantity P1 of Q1 Demand curve Q1 Quantity of USD 76
  77. 77. Supply and Demand: Basics of EconomicsPrice of USD If the supply curve shifts…what happens? Supply curve The price is changed from P1 to P2 but the quantity increases from Q1 to Q2 This is the case for the USD P1 If the Fed cuts interest rates / trying to keep P2 rates low, it is trying to increase the USD money supply …But why would the US Fed want to cut interest rates or keep interest rates low? Demand curve Q1 Q2 Quantity of USD 77
  78. 78. Supply and Demand: Basics of EconomicsPrice of USD Not only that, demand for USD is weaker and Supply curve the demand curve is to shift to the left The USD will then be re-priced at P3 and Q3 Why is the demand for USD dollar falling? P1 US import more than it exports… P2 …therefore the US will demand more foreign P3 currency to pay for its imports …and other countries demand for USD is less Demand curve since US import more than it exports Q1 Q3 Q2 Quantity of USD 78
  79. 79. Balance of Payments Company Cashflows Trade Balance Cashflow from Operations + + Service Account Cashflow from Investing = = Current account balance Free cashflow Private capital flows Change in debt + + Public capital flows Dividends / new equity = = Capital inflows / outflows Cashflow from Financing Balance of Payments Net cash flow Forex reserves Cash equivalents 79
  80. 80. Our methodology for USD/THB forecastingUSD/THB USD/THB since 2001 48 50 46 y = -7.6484Ln(x) + 69.957 44 2 R = 0.8665 45 42 40 38 40 36 34 35 y = 27.698Ln(x) - 86.288 32 2 R = 0.7563 30 30 28 26 25 75 125 175 225 25 FX reserves to USD/THB mapping 70 80 90 100 110 120 130 FX reserv es, current USD bn DXY 2011 forecast DXY to USD/THB mapping current 80
  81. 81. Cumulative current account & USD/THB USD/THB40000 29 4830000 31 46 3320000 44 35 y = -0.0003x + 37.31410000 42 37 R2 = 0.7087 40 0 39 38-10000 41 43 36 latest data point-20000 45 34-30000 32 01 02 03 04 05 06 07 08 09 10 30 TH current account cumulative, Jan 91 = base, USD mn, left axis 28 -40000 -20000 0 20000 40000 USD/THB, right axis, inverted cumulativ e current account balance, Jan 91 = base, USD 81
  82. 82. 82

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