How About Long Term Military Rule ? Fx Thoughts

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My friend sent me some fresh photos from Thailand yesterday.

THAILANDHe is not local but he thinks perhaps military rule could last a bit longer than we, from the outside, think. What is the point of electing another leader when the losing side will try to derail things ?

And so I checked with my dad this morning while we were stuck in the usual Singapore immigrations jam. Military = Yellow shirts, oops. Farmers won’t be too happy.

This is not an attempt to analyse the political situation over there in Thailand but a rationalisation of the effects on portfolios.

A fund manager friend was busy trading Thai bonds a couple of days ago and I expressed surprise that he was that eager(and greedy) to get into the Ukraine and Greece recovery trades.

He informed me that he was SELLING and not buying. So much for all the feel good theories we are getting from big wigs like Mark Mobius that the junta government is good for the country, his view is that he better get out while the “greedy Ukraine” bids are there because the new junta government set rules on a day to day basis and he cannot afford to have that risk in his portfolio.

Lets take a look at Thailand’s major investors in this old (2013) HSBC chart.

THAILAND FDI

Dear me, the lion share belongs to Japan, not that it is a big sum to the Japanese (they are buying up America and the rest now).

Honda came out to announce a 40% production cut in their Thai plants one day after the coup, citing that it was not the coup that was behind their decision.

Singapore is a major beneficiary as a safe haven for Thais as evidenced in the FNN buy out and the 20% Breadtalk investment.

Money is flowing out, faster than it is going in.

thailand fdi 1Yellow line – inflow as % of GDP
White line – outflow as % of GDP

I believe we are too complacent about USDTHB which really has room to challenge this year’s high of 33.15 and we are bouncing off a double bottom considering their twin deficits. https://tradehaven.net/market/fx/the-twin-deficits-way-of-life-gbp/

usdthb double bottom

SGDTHB should be spiking further from here even though we are at highs not seen since 1998 at 26.11. I see potential for a break towards 28.00.

The contagion effect on the region should be muted given that the new government will do their best to avoid international sanctions and pick a new interim leader soon.

Coups are usually unhealthy business even if this one is being hailed as good thing by global investors. And if I had to pick a major currency as a hedge, I would pick the USDJPY.

The USDJPY longs are patiently awaiting a break up out of the dead zone, as the range we are in now is called. There is a good chance of a break lower under 101.

USDJPY CHANNEL

EM Asean euphoric sentiments are fading to a slight risk off despite the signs of fund inflows into the EM bond basket. Even darling Indonesia is getting a little stale. Only Malaysia remains untainted and a good buy according to certain investor polls.

I tend to agree.

Lets play guess the country game.

JB SPOREWhich one is JB and which one is Singapore ?

The conundrum : that if the traffic originates from one source and the source is empty, why should the destination be jammed ?

Have a good day.