More foreign capital is better than none at all - expert

Merrill Lynch's vice president for equity strategy Daniel Casali believes having more foreign capital is "better than no foreign capital at all" for Thailand, especially during a time when countries are intensely competing for cash abroad.

Malaysia and Singapore are good examples of neighbouring lands that have scored high with foreign investors, he said. They have been rewarded by massive sums of capital from overseas being fed into their financial systems.

As of Monday, the BOT's assistant governor Suchada Kirakul still stood by the position of not opening the door to foreign capital. She insisted lifting the curbs would destabilise the local financial system.

The bank's position runs counter to both the policies of the new coalition government's as well as the opposition's.

Casali said Singapore was an example of Darwin's evolution theory (on survival of the fittest) at work. The city-state proves it is not the strongest or biggest that will survive, but the most adaptable to changes.

Hong Kong, another mature economy, has often been praised for its resilience. It is quick to adapt to changes such as monetary policies, thanks largely to an efficient banking infrastructure that was built up by former British colonials that encourages its laissez-faire economy to thrive.

The Hong Kong Monetary Authority yesterday lowered its base rate through its overnight discount window by 75 basis points to 5 per cent, a vital move considered that the Hong Kong dollar is pegged to the US dollar.

This has led to banks such as Standard Chartered and Bank of East Asia reducing their lending rates.

A relaxed monetary policy will ease liquidity, which is a key factor in ensuring buoyant prices for Chinese equities.

China and Hong Kong are where Merrill Lynch is heavily overweight. The firm is not just praising these markets but is acting on its own recommendations.

It has allocating about 17 per cent of its Asian equity portfolio there, compared to just 1.7 per cent for Thailand.

In addition to good liquidity, Casali said strong real GDP growth of 9 to 10 per cent for the next three years was an additional reason why it was banking on the Hong Kong-China market.

The firm is investing in Chinese and Hong Kong stocks, including the latter's

H-shares, said Stephen Corry, global wealth management investment strategist.

According to Merrill's investment team, other Asian emerging markets such as Taiwan and South Korea continue to benefit from China's continual decoupling from the US economy.

This would make up for the weakening American economy, said Corry.

"But [China's] domestic liquidity will be the main determining factor for its asset prices," said Casali.

The health of its economy also depends on the central government's ability to curb inflation, he added.

Ki Nan Tsui

The Nation