J.P.Morgan Not Buying The Dip In USD/THB, Yet

In the wake of yesterday’s Chinese quarantine news J.P.Morgan noted that “Thailand welcomed 11 million Chinese tourists in 2019, but this year weak arrivals from China have impeded Thailand’s tourism recovery (making up less than 3% of visitors YTD, versus 28% in 2019). Thus far we have estimated that Thailand’s current account will break even by February, assuming $110 Brent oil and 100K additional tourists every month (8.2mn for 2022). But if China is relaxing rules for outbound tourism, then it might make sense to assume a faster pace of increase in monthly arrivals. If we adjust our assumptions to 200K additional arrivals every month (10.4mn in 2022), then the current account should break even by November (). As a rule of thumb, every 100K arrivals improve the country’s current account by $120mn per month; every $10 increase in oil prices worsens the current account by $400mn per month.”

• “We had previously noted that we are inclined to buy USD/THB on dips. While the news has indeed delivered a dip, it potentially changes some of the fundamental assumptions we had for Thailand’s BOP, with an earlier closing of the current account deficit being a bullish development. Speculative and portfolio flows may front-run this improvement: this is what happened in Q122 with Thailand equities seeing $3.4bn of inflows even as other markets in the region saw large outflows or smaller inflows. Positioning in THB in also improved markedly, with participants of our local markets survey adjusting positioning from -3.4 (multiyear low) in October 2021 to -1.7 in February, before the outbreak of war in Ukraine saw oil prices spike and the current account calculus for Thailand change dramatically.”