The Thai stock market should "stop the bleeding" soon after the selling spree by foreign investors ends and the true attractiveness of the economy and of private companies shine again, financial authorities and market observers said.
The Stock Exchange of Thailand bled heavily over the past three days, losing 125.28 points, or 8.2 per cent. Yesterday's close of 1,403.27 points was up only 0.81 per cent from 1,391.93 at the end of last year. Against this year's peak of 1,643.40 in May - which was the highest level in 19 years - it has lost 14.6 per cent.
The foreigners' selling spree was sparked by improvement in some economic indicators in the US. Though mixed, the data are on balance better than they have been. The euro zone also showed better-than-expected data in manufacturing in May, while emerging markets showed slower growth. In its Global Economic Prospects report, the World Bank, which cut its global forecast from 2.4 per cent to 2.2 per cent, foresees slower growth rates among emerging markets in 2013. Speculation is running high that the US Federal Reserve will taper its quantitative easing (QE), lessening its monthly injections from the US$85 billion (Bt2.61 trillion) at present.
Bank of Thailand (BOT) Governor Prasarn Trairatvorakul admitted that foreign funds had flowed out of the stock market as well as bond markets recently. Some had left the country abruptly, causing the baht to suddenly weaken and forcing the central bank to intervene to stabilise the foreign exchange market.
The intervention supports the baht and unloads some of the foreign reserves accumulated in the first months of this year. Prasarn noted that in doing so, the BOT has tried not to move against the market movement. He admitted that the weaker baht could slightly push up inflation, as Thailand remains a net energy importer. However, the impact would be minimised on comparatively low energy prices.
As a result of intervention, the baht managed to rise to 30.92 per dollar at 3:17pm, after opening at 31.06 - the lowest level in nine months. The baht has also weakened against the euro and Japanese yen. It opened at 41.48 against the euro yesterday, down 5.31 per cent from end-May. Meanwhile, per 100 yen, it depreciated by 7.73 per cent during the same period to 32.66.
However, Prasarn said the markets should not overreact to the rapid depreciation of the baht or the sudden plunge in the stock market, as they are in line with global movements.
SET president Charamporn Jotikasthira also believed that despite the short-term volatility, in the long run, the global economy would benefit if the US economy could achieve a sustainable recovery.
Withdrawal of QE in the United States is one of four new risks that developing countries are facing, according to the World Bank. The others the potential effects of the radical relaxation of both fiscal and monetary policy in Japan, a faster-than-expected decline in commodity prices, and domestic challenges including inflationary pressures and asset price bubbles as well as weaker-than pre-crisis growth rates. The World Bank has cut its emerging-markets forecast from 5.5 per cent to 5.1 per cent.
Foreign investors had been net-sellers in 13 out of the last 15 trading days, with combined net-sells of 50.1 billion baht (US$1.62 billion). Yesterday, their net buys were worth 1.4 billion baht, boosting month-to-date net sells to 32.66 billion baht and the year-to-date figure to 53.7 billion baht.
Asia Plus Securities said in a research note that following the sell-off, foreign investment flowing to the Thai stock market since November 2011 till now has been squeezed to 34.5 billion baht from the 106 billion baht peak. On average, foreigners bought shares when the index was at 1,455, suggesting that they should not sell when the index is below that level.
Coupled with net-buys since 2009 (after the end of the Hamburger crisis), foreign holdings in Thai shares are worth 180 billion baht. "The amount is huge, but the situation should not be so severe that all shares will be sold out. Initially, we believe that their disposal amount would not exceed the net-buys since November 2011," the brokerage house said. Its main concern is with local institutional investors. Their net-buys so far this year have exceeded 54 billion baht.
Coupled with investment in long-term equity funds (LTFs) since 2009, of which the present value is 53 billion baht, the local institutional investors sit on sellable assets worth over 100 billion baht. If these institutional investors sell off the shares, the market condition could worsen, it noted. CIMB-Principal Asset Management chief investment officer Jessada Sookdhis compared foreign investors to those addicted to stimulants. Fearing that the "stimulants" (QE) would be taken away, they kicked off panic selling. He said that Thailand has been under pressure from external factors like this before, like in 2011 when foreign investors panicked over the Greek debt crisis. After a selling spree, they returned quickly. Given the strong economic fundamentals and listed companies' earnings trend, the Thai market still shows growth potential.
"In the next one to two years, the SET Index could reach a new historic new high," Jessada said. His company advises more weighting in Thai shares, property funds and medium-term bonds in the latter half of this year on the assumption that Thailand's earnings growth would continue at 10-20 per cent per annum in the next one to two years while the US and Japan should continue maintaining QE, albeit at a reduced level.
In his testimony to the Joint Economic Committee of Congress in Washington in May, US Fed Chairman Ben Bernanke said: "A premature tightening of monetary policy could lead interest rates to rise temporarily, but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further."
US$1 = 30.84 baht
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