The Thai government agreed today to impose a 15 per cent withholding tax on interest and capital gains earned by foreign investors on Thai bonds, the latest bid by an emerging economy to tame its surging currency.For more, go here.
I believe this is one of the best weapons to tackle the inflow of hot moneys into our region. The alternative is to impose capital controls which are even more unpalatable to international community. Slowly but surely, the tide is turning...
From Chart 1 below, we can see that the cross rate for USD-RM has gone above the 20-day SMA line at 3.09. As at 4.30 am EDT, USD-RM cross rate was traded at 3.1065. Would the USD-RM cross rate rise sharply like in June-July 2009 (denoted as 'A') & April-June 2010 (denoted as 'C') or would it swing up & down like in October 2008 to February 2009 (denoted as 'B')? A sharp rise in the USD-RM cross rate would lead to a sharp correction in our stock market (see Chart 2 below). On the other hand, a bumpy ride for the USD-RM cross rate may not jeopardize the current rally in the stock market. I am more inclined towards the second scenario since the USD index has already recorded a death cross (as noted in an earlier post). Nonetheless, we must be prepared for choppy tradings ahead.
Chart 1: USD-RM exchange rate as at September 22, 2010 (Source: Yahoo Finance)
Chart 2: FBM-KLCI's daily chart as at Oct 11, 2010 (Source: Tradesignum)
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