Former Thai deputy premier Supachai Panitchpakdi warned that there were signs of a “bubble” in the Thai economy, with massive fund inflows heading mostly to the property sector.

Supachai sees signs of a bubble

March 16, 2013 1:00 am

Unctad chief urges officials to monitor property prices and bank lending

Former deputy premier Supachai Panitchpakdi warned yesterday that there were signs of a “bubble” in the Thai economy, with massive fund inflows heading mostly to the property sector.

Supachai, secretary-general of the UN Conference on Trade and Development (Unctad), expressed concern over a bubble in Thailand’s property sector, which he said could expand and create problems for the economy in the future. 

He called on the responsible agencies to pay attention to property prices, such as for condominiums, and to closely monitor bank lending. Expressing concern over overheated lending by banks, he said asset prices in some sectors are likely to exceed reasonable levels.
Supachai was speaking on the sidelines of a seminar entitled “Looking Towards 2015 Through the World and Thailand”, which was organised by the Thailand-China Business Council. He served as deputy prime minister in charge of economic affairs in the Chuan Leekpai government from 1997 to 2000, and as director-general of the World Trade Organisation from 2002 to 2005.

He said yesterday that economic growth in Asean countries is 5-6 per cent, while Thailand’s economy this year is expected to expand by 6 per cent.

Supachai was upbeat about Thai economic growth due to the bright outlook for exports. He said domestic consumption and public investment continue to support the economy.

He did not think the strong baht would have any serious negative impact on exports, because of decreased import costs. However, he suggested that the central bank should intervene in the baht to ease the massive fund flows, which pressure asset prices but do not benefit the country.

Thailand-China Business Council chairman Thanakorn Seriburi yesterday said the strong baht had not yet harmed the Thai economy. He did not expect the currency’s appreciation to have much impact on exports, as exporters have made good preparations. 

However, he added, if the baht reaches Bt28 against the US dollar, it could hurt Thai export growth and the Thai economy in the long run, due to its dependence on export growth.

In a related development, Narongchai Akrasanee, a member of the Bank of Thailand’s Monetary Policy Committee (MPC), yesterday said Thai and global financial markets would be subject to further high volatility because investors holding large amounts of capital are searching for higher yields.

Asked whether the MPC would consider a cut in the policy rate from 2.75 per cent at its April meeting, Narongchai said there are other measures besides the interest rate tool that the central bank could use to prevent economic bubbles or a stronger baht. 

He said fund flows worth an estimated US$65 trillion (about Bt1,920 trillion) worldwide have pushed financial markets, including Thailand’s, to record highs recently. 

The quantitative easing (QE) implemented by the US Federal Reserve and other central banks had not contributed much to large inflows into Asia as those actions had not greatly increased the money supply in the global economic system, he said. 

“For example, the Fed has injected about $7.6 trillion into the US economy so far, but a large amount of funds returned to the Fed and only $3 trillion actually ended up in the market,” he said. 

However, investors holding large amounts of funds have tried to seek higher returns. Therefore, these funds have flowed into countries that have higher interest rates compared with very low rates close to zero in developed countries.

The baht yesterday saw its biggest weekly advance since January, touching a 19-month high of 29.55 against the greenback. It has strengthened 3.5 per cent this year, making it the best performer among Asia’s 11 most active currencies, according to Bloomberg.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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