- ABN AMRO assess Thailand’s investment strategy post relaxation of capital controls arguing that “removal of the two-FX tier system is unlikely in the foreseeable future, at a time when the economy is highly reliant on the export driver for growth support.” They foresee a continuation of monetary intervention and political pressures.
“We expect the BoT to continue to intervene actively to keep the THB competitive. Also, we think that the authorities will revert to conventional approach of monetary and fiscal easing, as the interim government faces pressure to turn around the economy ahead of an election targeted to be held in October.”
But ABN AMRO predict that the government will not seek to introduce sharp new capital control measures to appease the market. They also foresee an easing of interest rates: “We note the urgency to boost the economy before a general election is slated in October (and possibly later given the slow pace in the amendment of the Constitution). For the central bank, easing interest rates (i.e negative carry vis-à-vis
the USD) also have the desirable effect of discouraging THB speculation.”
- Moody’s caution that large CA deficit in eastern EU countries is certainly a risk but has no comparison to the Asian crisis of 1997. “We believe that the comparison with Asia 1997 is misleading. It ignores the nature of EU integration, which lends support to a realistic real income convergence scenario and reduces considerably the risk of a sudden halt to external financing. This, combined with the balance sheet strength of most of these governments, explains Moody’s sovereign investment grade ratings which range from Baa3 to A1.”
However, they do point out that global volatility and bumpy exchange rate adjustments pose significant risks. The report concludes that EU accession is leading to complacency but accession itself will reduce BOP crisis probability and severity.
- Commerzbank argues Taiwan’s short and long term investment prospects are bright. Taiwan is seen more benign than South Korea due to the latter’s weakening domestic growth and consumer spending this year. Though Taiwan’s political relationship with China may be fraught, economically the ties are strong: “Taiwan provides an investment opportunity to participate in China’s economic growth story at
a time when China’s stock market appear to be in a corrective mode.”
Furthermore, “Despite restrictions on Taiwanese companies’ investment in China, private corporates are quite active in expanding activities in mainland China. Therefore, Taiwan and South Korea may further benefit from a rise in competitiveness by lower production costs, on the one hand. On the other hand, China’s strengthening private consumption should be positive for corporates in both countries.”
However, Commerzbank note politics remains key: “Parliamentary elections in December 2007 and presidential elections in 2008 may lead to fresh policy initiatives to advance a closer economic relationship with mainland China.” Additionally, public support for stable economic and political ties is promising, they argue.