Power generation companies on the Stock Exchange to Thailand (SET) are benefiting from the strong baht, says Yuanta Securities Thailand, adding that retail, communications and finance stocks usually attract investment when the baht appreciates beyond 34 to the dollar.
Yuanta Securities expects power generation stocks to gain from the rapid appreciation of the baht, after the Federal Reserve sent a clear signal that US interest rate cuts were imminent.
Fed chairman Jerome Powell's pivot on rate cuts at the Jackson Hole Symposium late last month increased market confidence that the Federal Open Market Committee would slash the level at its meeting this month, said the brokerage.
Investors still need to monitor US employment figures scheduled to be announced on Sept 6.
"If the number is weaker than expected, it will lead to increased speculation for a rate cut of 0.5 percentage points, which will cause the dollar to weaken," Yuanta said in a research note.
Power generation companies generally have debts in dollar terms. Thus if the baht strengthens against the greenback, the value of these debts is lower when converted to baht.
According to the brokerage, statistics indicated the dollar's depreciation against the baht this year often has a positive impact on the direction of the SET index.
Other industries expected to be investment targets if the dollar weakens below the support level of 34 baht against the greenback are power plants, retail, communications, finance, and real estate investment trusts, noted Yuanta.
Kasikorn Research Center (K-Research), an arm of Kasikornbank (KBank), acknowledged that a 1% appreciation of the Thai currency against the dollar would affect exports by 100 billion baht, more than 0.5% of nominal GDP.
"The baht's movement has been quite volatile since the beginning of this year," said the think tank.
The currency weakened gradually early in the year, falling below 37 baht to the dollar in late April before reversing to an appreciation trend since July, finally breaking 34 baht to the dollar last month.
The dollar remains pressured by anticipated Fed rate cuts. As a consequence, it is possible the baht could appreciate to 33.60 to the dollar in the short term, said K-Research.
However, KBank maintains its year-end forecast for the baht at 34.50 to the dollar, remaining volatile for the remainder of the year depending on economic conditions and US economic data.