BANGKOK: There is a good opportunity to invest in Eurozone assets and expand business to the Eurozone through direct investment, mergers and acquisitions or equity investment given higher liquidity in the Eurozone amid a prolonged low interest rate, according to CIMB Thai Research.
It views the weakening euro as an opportunity to invest in Europe despite the financial turmoil.
“Be mindful of short-term fluctuations of the market amid fears of Greece’s exit,” said Amonthep Chawla, Head of Research Office of CIMB Thai Bank.
However, he said CIMB Thai Bank’s Research doesn’t think Greece will exit the Eurozone.
“What if we are wrong and Greece does exit? We view that the coming Euro crisis period is a good opportunity to gradually invest in Eurozone assets anyway, particularly in Germany as Germany is projected to benefit from the weakening euro to increase its export competitiveness,” he said.
Given the weakening euro, imports from Thailand will appear more expensive, hindering Thai exports, he said.
“However, as long as these European countries have growth (no crisis), we think Thai exports to Europe, sharing about 10 per cent of total exports, are unlikely to be affected much.
“We had better worry about the cut of GSP privilege. The major concern is that the baht does not depreciate as much as regional peers, deterring our export competitiveness,” he said in a statement released by CIMB Thai.
Greece will hold a legislative election on Jan 25, leading to speculation that opposition party Syriza will win the election, which raises the likelihood that Greece will renegotiate with the International Monetary Fund, European Central Bank and the European Union to increase public spending.
However, Germany is unlikely to allow such a renegotiation for fear that other countries will relax the fiscal disciplinary path which could cost the Eurozone another sovereign debt crisis, giving Greece no choice but to exit the Eurozone, Amonthep said.
One benefit from leaving a common currency is that Greece can allow its Drachma to depreciate sharply to support its exports and tourism, but it will face difficulty financing its economy because it will lose foreign funds, mainly from the ECB and banks in the Eurozone, he said.
One possibility is for Greece to negotiate its interest or debt payment with the Troika for easing its cost of debt, allowing Greece to have more resources to boost the economy.
During the period of uncertainty before the election, investors are likely to liquidate risky assets and search for safe havens such as gold as well as US Treasury and Japanese bonds.
But once Greece is off the hook and the Eurozone is back on stability, investors will return to risky assets, particularly in Europe as well as in emerging markets, he added.
Despite stability in the Eurozone without Greece’s exit, the euro is projected to depreciate against major currencies following higher liquidity injected to the system through its qualitative easing (QE) programme (after the meeting on Jan 22), he said.
The ECB is likely to use some measures to cause the euro to lose attractiveness or even use exchange rate policy to depreciate the euro for supporting exports.
The Swiss National Bank (SNB) lowered its eposit rate to -0.75 per cent from -0.25 per cent, and abandoned the peg at the 1.20 franc per euro level, causing rapid capital inflows and leading to a sharp appreciation of the franc, he said.
SNB is seen to prepare for the Eurozone’s QE which they are unwilling to defend, he said.
It is possible to see the euro weakening against major currencies, yet the economy is likely to recover following stability in Greece’s membership and higher export competitiveness, he added. – Bernama