The euphoria from fresh records in U.S. stocks spilled over into Asia on Friday. The Shanghai Composite rallied 2.5% for its biggest gain in six weeks. The Nikkei 225 rose 0.8%, a day after Prime Minister Shinzo Abe won another term as leader of Japan’s ruling party.
Friday’s Big Theme
In Thailand, the country at the center of the Asian financial crisis two decades ago, markets are booming. That is thanks in part to a large current-account surplus, which effectively means Thailand is today a net lender abroad, rather than being overly dependent on foreign funding.
Thai stocks and the baht have advanced this quarter, pushing both into positive territory for the year even as many other emerging markets are struggling.
Thailand’s benchmark SET Index has surged 10% since its low for the year on June 29 in local-currency terms. With Friday’s advance, the index has eked out a 0.1% gain for the year and is less than 5% away from its January record. The prospect of elections next year, after much delay, has boosted sentiment, said Charnon Boonnuch, Southeast Asia economist at Nomura.
The Thai baht—nowadays a freely floating currency rather than one with an unsustainable dollar peg—is up 0.6% for the year, according to FactSet. A high exchange rate can bring its own problems, such as making exports less competitive, but this year, weaker currencies are a much bigger headache for emerging markets, particularly those with lots of hard-currency debt.
Stocks, corporate bonds and currencies in Indonesia and China, as well as in trouble spots such as Turkey and Argentina, have tumbled this year. A strong dollar and higher U.S. interest rates have dented the appeal of investments in higher yielding but riskier emerging economies and sucked cash into the relative safety of the U.S.
Decent economic growth and a current-account surplus have helped insulate Thailand from the woes afflicting its peers, analysts say. From a current-account deficit of 8% of GDP in 1996, Thailand has gone to a surplus of 10.6% as of last year, according to the World Bank.
Moreover, the bond market isn’t dominated by foreigners who tend to flee in times of stress, unlike Indonesia. And economists expect the central bank to lift interest rates in the coming months, which has helped boost the baht.
Thailand also looks attractive because of its tourism and services sectors, which mean it will be less affected by trade tariffs than some Asian peers, said Irene Cheung, senior strategist for Asia at ANZ.
“It’s a more diversified economy that’s not too dependent on what’s happening between the U.S. and China,” she said. “It makes them more resilient.”
Still, the country hasn’t been immune to the pullback from riskier investments. Foreigners have pulled money out of Thailand’s stock market every month this year, although they poured $1.5 billion into its bond market last month, according to ANZ estimates.
The Hong Kong dollar surged. In recent action, one U.S. dollar bought 7.8129 Hong Kong dollars, which meant the Hong Kong currency had strengthened 0.4%—an unusually large move for a pegged currency that trades in a narrow band against the dollar.