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Local stocks charmed by dovish Fed

Global markets rally on hints of slow hikes

Federal Reserve chair Janet Yellen speaks after the Fed's Open Market Committee raised the US benchmark rate by a quarter point to a range of 0.75-1%. (Bloomberg photo)

Thai shares rose 1.05% Thursday, joining a global stock rally, as investors were given a breather with a more dovish outlook for future US rate rises.

The SET index started the day on a firm footing and headed north to the day's high of 1,559.61 before settling 1.05% higher at 1,557.05 in brisk turnover worth 56.1 billion baht.

Foreign investors cashed out 1.3 billion baht Thursday, bringing their net selling to 13.4 billion this year.

Asian bourses advanced almost across the board. Hong Kong's Hang Seng index was the best performer, adding 2.08%; Indonesia's Jakarta Composite jumped 1.58%, Taiwan's SE Weighted Index rose 1%; Singapore's Straits Times Index gained 0.83%; and Korea's KOSPI Index increased 0.83%.

The baht appreciated marginally to 35.03 to the US dollar from 35.07 on Wednesday.

The firmer baht was in line with other regional currencies, as investors lowered their holdings in US assets after the Federal Reserve raised its benchmark rate by a quarter point as widely expected but signalled no pickup in the pace of tightening, said Vachira Arromdee, the Bank of Thailand's assistant governor for the financial markets operations group.

"Even though the US interest rate will remain in an upward trend in the future, uncertainties linger regarding when the Fed will raise its rate again, and as a result, the market will remain volatile," she said.

The Bank of Thailand recommends that the private sector manage risk associated with foreign exchange, Ms Vachira said.

Separately, Mathee Supapongse, the Bank of Thailand's deputy governor overseeing monetary stability, said that headline inflation, which returned to the target band in December, is edging up, while public expectations of medium-term inflation are close to the median of the target band.

"As a result, the BoT still sees no risk of the country falling into the low-inflation trap, as seen by the goods and labour market indices, and an overall economy that is in the recovery process," he said.

The central bank's target for average headline inflation for 2017 is 1-4%, the same as last year.

Mr Mathee said concerns over the global disinflationary shock have subsided and signs of global reflation have started to show, reflected in rising oil prices and bond yields.

"Therefore, the BoT sees the policy rate of 1.5% remaining accommodative and conducive to the economic recovery," Mr Mathee said, adding that if the central bank wants to ease further it will have to consider whether the benefits outweigh the costs.

"The possible negative effects include effects on people's savings in the low-interest-rate environment and effects on the country's financial stability," he said.

Kobsak Phutrakul, assistant minister to the Prime Minister's Office and a former Bank of Thailand staffer, said the US rate rise will have no short-term impact on Thai interest rates because the gap between the policy rates of the two countries is still large.

Mr Kobsak expects low capital flight from Thailand to the US.

"It could take around one year to make the US rate close to Thailand's policy rate," he said.

Nopporn Thepsithar, president of the Thai National Shippers' Council (TNSC), said the Fed's rate hike should weaken the baht, while the US central bank's optimism over the world's largest economy will also boost Thai exporters' confidence.

"It is really a positive effect for us," Mr Nopporn said. "The weaker baht will help us sell goods at more competitive prices and the world largest economy's growth means other markets should also recover."

After the Fed's rate increase is taken into account, the TNSC is confident that Thai exports will expand by 2-3% this year.

But risks remain from the unpredictable trade policy of President Donald Trump's administration, especially the nationalism and protectionism that could affect trade relations with other countries.

Winichai Chaemchaeng, the commerce vice-minister, said Thai export growth could reach 5% or US$18 billion a month if the Fed raises the rate two more times this year as economists forecast.

"The currency exchange is not an issue, because we all anticipated the trend a few months ago and exporters have prepared themselves to handle it by hedging to cover risk," Mr Winichai said.

Asia Wealth Securities managing director Warut Siwasariyanon said the Thai stock market Thursday reacted positively to the US rate hike because the Fed's milder tone on future rate rises dispelled fears of fund outflows.

The Fed signalled that interest rate hikes would not increase in pace, so concerns about fund outflows from emerging markets eased, Mr Warut said.

But investors are still concerned that elections in five euro-zone countries this year could stoke geopolitical tensions and that new government policies might affect economic and monetary direction.

Apichai Raomanachai, research manager at Apple Wealth Securities, recommends investors seek high-yield stocks to avoid market volatility at present.

He gives buy ratings to Krungthai Bank (KTB), Kiatnakin Bank (KKP), AP Thailand (AP) and SC Asset Corporation (SC), as well as big banks that will benefit from interest rate increases.

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