Power generation companies listed on the Stock Exchange of Thailand (SET) are reaping the benefits of a strong baht, according to Yuanta Securities Thailand, which notes that retail, communications, and finance stocks typically attract investment when the baht appreciates beyond 34 to the dollar.
Yuanta Securities anticipates that power generation stocks will gain from the rapid rise of the baht following a clear indication from the Federal Reserve regarding imminent interest rate cuts.
At the Jackson Hole Symposium late last month, Fed Chairman Jerome Powell’s shift towards rate cuts increased market confidence that the Federal Open Market Committee would lower rates at its upcoming meeting, according to the brokerage.
Investors are advised to keep an eye on US employment figures set to be released on September 6.
“If the figures fall short of expectations, speculation for a 0.5 percentage point rate cut will likely rise, leading to a depreciation of the dollar,” Yuanta stated in a research note.
Power generation companies typically have dollar-denominated debt, so a stronger baht reduces the value of these debts when converted into baht.
The brokerage highlighted that the dollar’s decline against the baht this year has generally had a positive effect on the direction of the SET index.
If the dollar weakens below the support level of 34 baht, industries such as power plants, retail, communications, finance, and real estate investment trusts are expected to attract investment, according to Yuanta.
Kasikorn Research Center (K-Research), a division of Kasikornbank (KBank), pointed out that a 1% rise in the Thai currency against the dollar could negatively impact exports by 100 billion baht, which represents over 0.5% of nominal GDP.
“The baht has shown considerable volatility since the start of this year,” the think tank commented.
The currency gradually weakened earlier in the year, dropping below 37 baht to the dollar in late April, before beginning a trend of appreciation in July, ultimately surpassing 34 baht to the dollar last month.
The dollar remains under pressure from anticipated Federal Reserve rate cuts, which means the baht could rise to 33.60 to the dollar in the short term, according to K-Research.
However, KBank continues to forecast the year-end value of the baht at 34.50 to the dollar, expecting volatility for the remainder of the year based on economic conditions and US economic data.
