As we enter the second half of 2020, countries around the world are slowly lifting their respective COVID-19 lockdowns in an effort to not only to get their own economies up and running, but the global economy as well. It can’t be overlooked that the COVID-19 pandemic has had a detrimental impact on the health of the global economy, with global unemployment in the double digits, international trade grinding to a halt, and domestic and global GDP around the world at levels not seen since the Great Depression.
Despite this economic and societal hardship, we are slowly beginning to see green shoots emerge within the international economy. Manufacturing PMIs, international trade shipments, and global commodity demand are slowly showing signs of improvement in May 2020, giving investors hope that the global economy may have bottomed in April.
Given this turn of events, as various countries come back online in an attempt to get back to normalcy, one country that has caught our attention, and seems to stand out amongst its regional economic peers, is Thailand.
As a result of the COVID-19 pandemic, Thailand’s economy shrank for the first time in six years, shrinking 1.8% between January to March, as the tourist dependent country, which derives approximately 14% of its global economic activity from tourism, saw over 40 million tourists that were expected to visit the country this year decide to stay at home. Consequently, the country saw a 76.4% drop in tourism in March 2020, vs the same time in 2019, indicating that Thai tourism has come to a virtual standstill, as foreign tourists stay put.
However, despite this economic setback, Thai assets have been some of the best performing securities within the East Asia Pacific region. Since bottoming in March, Thai equities have risen 33.90%, staging one of the most impressive rallies amongst the East Asia Pacific equity markets. To add further wind to its sails, the Thai Baht has also staged an impressive rally during the same time, rising 4.52% against the US Dollar, to become one of the top East Asia Pacific currencies this year. Lastly, yields on the Thai 10-year government bond have fallen from 1.750% in mid-March, to 1.185% in June, as global investors begin to venture back into Emerging Market bonds in search of yield and investment opportunity.
This impressive performance in Thai assets in recent weeks can be attributed to the fact that as the global economy begins to open back up, many are optimistic that the Thai economy will make a sharp rebound. With global infection rates plateauing since April, global investors and traders hope that the easing of global lockdowns will provide a much-needed jolt to the Thai tourism sector, as well as the economy as a whole.
Like various global tourist hotspots, the recovery in tourism demand for Thailand is expected to first stem from domestic and regional corporate markets, before expanding out into intra-region travel. When global borders open up once again and international travel restrictions are lifted, China is expected to play a dominant role in the rebound within the Thai tourism sector.
From a domestic perspective, in an effort to kickstart the Thai economy, the Thai government has enacted expansionary economic measures to stimulate the economy. Thailand’s parliament approved a ฿1.9 trillion Baht (US$60 billion) stimulus package to bring the country out of recession. Digging a little deeper into this bailout package, the Thai government states that it is trying to target three important pillars of its economy: i) commercial banks and small and medium-sized business (SME), ii) households and workers, and iii) the financial services sector.
For the first pillar, the package provides ฿500 billion Baht (US$15 billion) in funding for commercial banks to lend to SMEs. By providing economic assistance to these economic participants, these measures are designed to help mitigate the immediate liquidity issues plagued by SMEs, as well as to provide them with the funds needed to pay their employees.
Additionally, Thai officials have also allocated ฿1 trillion Baht (US$30 billion) in financial aid to farmers and other individuals impacted by COVID-19, in an effort to shore up this area of the economy. From this amount, ฿600 billion Baht (US$18 billion) is allocated to increase financial aid to contract workers, temporary workers, and self-employed individuals. The remaining ฿400 billion (US$12 billion) will go towards rehabilitating the Thai economy through development projects that build local infrastructure, strengthen local communities, and create jobs.
Lastly, the remaining ฿400 billion (US$12 billion) of the stimulus package is allocated towards the Thai financial sector to establish a Corporate Bond Liquidity Stabilization Fund (BSF). The BSF – a special lending scheme – will allow the Bank of Thailand to buy corporate bonds to ensure sufficient liquidity within Thai financials markets and assets.
Overall, despite the short-term headwinds faced by Thailand, we believe that the stimulative measures implemented by the Thai government will help to stimulate the economy, and stave off a “worse case scenario” for the country. Through these economic recovery initiatives, we believe that the Thai government’s efforts to kickstart the economy are far reaching, in that they help to address the economic needs of the financial sector, Thai households and Thai business.
As a result of this three-pronged approach, we are currently bullish on Thai assets, and recommend to global investors and traders to keep an eye on Thailand, as there are some opportunities within the country.
**For those interested in looking to invest and/or trade this macro theme, check out our article “Banking on a Thai Rebound – Trade Ideas” for our trade ideas.
It’s Never Winter in the Land of Hope – Banking on a Thai Economic Recovery
As various countries come back online in an attempt to get back to normalcy, one country that has caught our attention, and seems to stand out amongst its regional economic peers is Thailand.
As we enter the second half of 2020, countries around the world are slowly lifting their respective COVID-19 lockdowns in an effort to not only to get their own economies up and running, but the global economy as well. It can’t be overlooked that the COVID-19 pandemic has had a detrimental impact on the health of the global economy, with global unemployment in the double digits, international trade grinding to a halt, and domestic and global GDP around the world at levels not seen since the Great Depression.
Despite this economic and societal hardship, we are slowly beginning to see green shoots emerge within the international economy. Manufacturing PMIs, international trade shipments, and global commodity demand are slowly showing signs of improvement in May 2020, giving investors hope that the global economy may have bottomed in April.
Given this turn of events, as various countries come back online in an attempt to get back to normalcy, one country that has caught our attention, and seems to stand out amongst its regional economic peers, is Thailand.
As a result of the COVID-19 pandemic, Thailand’s economy shrank for the first time in six years, shrinking 1.8% between January to March, as the tourist dependent country, which derives approximately 14% of its global economic activity from tourism, saw over 40 million tourists that were expected to visit the country this year decide to stay at home. Consequently, the country saw a 76.4% drop in tourism in March 2020, vs the same time in 2019, indicating that Thai tourism has come to a virtual standstill, as foreign tourists stay put.
However, despite this economic setback, Thai assets have been some of the best performing securities within the East Asia Pacific region. Since bottoming in March, Thai equities have risen 33.90%, staging one of the most impressive rallies amongst the East Asia Pacific equity markets. To add further wind to its sails, the Thai Baht has also staged an impressive rally during the same time, rising 4.52% against the US Dollar, to become one of the top East Asia Pacific currencies this year. Lastly, yields on the Thai 10-year government bond have fallen from 1.750% in mid-March, to 1.185% in June, as global investors begin to venture back into Emerging Market bonds in search of yield and investment opportunity.
This impressive performance in Thai assets in recent weeks can be attributed to the fact that as the global economy begins to open back up, many are optimistic that the Thai economy will make a sharp rebound. With global infection rates plateauing since April, global investors and traders hope that the easing of global lockdowns will provide a much-needed jolt to the Thai tourism sector, as well as the economy as a whole.
Like various global tourist hotspots, the recovery in tourism demand for Thailand is expected to first stem from domestic and regional corporate markets, before expanding out into intra-region travel. When global borders open up once again and international travel restrictions are lifted, China is expected to play a dominant role in the rebound within the Thai tourism sector.
From a domestic perspective, in an effort to kickstart the Thai economy, the Thai government has enacted expansionary economic measures to stimulate the economy. Thailand’s parliament approved a ฿1.9 trillion Baht (US$60 billion) stimulus package to bring the country out of recession. Digging a little deeper into this bailout package, the Thai government states that it is trying to target three important pillars of its economy: i) commercial banks and small and medium-sized business (SME), ii) households and workers, and iii) the financial services sector.
For the first pillar, the package provides ฿500 billion Baht (US$15 billion) in funding for commercial banks to lend to SMEs. By providing economic assistance to these economic participants, these measures are designed to help mitigate the immediate liquidity issues plagued by SMEs, as well as to provide them with the funds needed to pay their employees.
Additionally, Thai officials have also allocated ฿1 trillion Baht (US$30 billion) in financial aid to farmers and other individuals impacted by COVID-19, in an effort to shore up this area of the economy. From this amount, ฿600 billion Baht (US$18 billion) is allocated to increase financial aid to contract workers, temporary workers, and self-employed individuals. The remaining ฿400 billion (US$12 billion) will go towards rehabilitating the Thai economy through development projects that build local infrastructure, strengthen local communities, and create jobs.
Lastly, the remaining ฿400 billion (US$12 billion) of the stimulus package is allocated towards the Thai financial sector to establish a Corporate Bond Liquidity Stabilization Fund (BSF). The BSF – a special lending scheme – will allow the Bank of Thailand to buy corporate bonds to ensure sufficient liquidity within Thai financials markets and assets.
Overall, despite the short-term headwinds faced by Thailand, we believe that the stimulative measures implemented by the Thai government will help to stimulate the economy, and stave off a “worse case scenario” for the country. Through these economic recovery initiatives, we believe that the Thai government’s efforts to kickstart the economy are far reaching, in that they help to address the economic needs of the financial sector, Thai households and Thai business.
As a result of this three-pronged approach, we are currently bullish on Thai assets, and recommend to global investors and traders to keep an eye on Thailand, as there are some opportunities within the country.
**For those interested in looking to invest and/or trade this macro theme, check out our article “Banking on a Thai Rebound – Trade Ideas” for our trade ideas.
© 2020 Economics Global Inc.
Content Disclaimer
Any views expressed here are those of Economics Global Inc. as of the date of this publication, are based on available information, and are subject to change without notice. This document does not constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.