The local stock market yesterday plummeted 1.84 per cent in the wake of a fresh sell-off across the major global exchanges after a higher-than-expected US inflation rate in April reignited investors' jitters about a further interest rate hike.

Philippine share prices were the worst regional performers, falling 3.44 per cent. South Korean shares lost 2.59 per cent, Hong Kong was down 2.1 per cent and Singapore fell 1.82 per cent. Japan's Nikkei-225 closed down 220.49 points, or 1.35 per cent.

The Dow Jones Industrial Average plunged 214.28 points, or 1.88 per cent, to 11205.61, its biggest point drop since March 2003. The index is now down 3.8 per cent since Wednesday's close.

From the opening of trading, Thai shares were subject to across-the-broad selling pressure led by foreign investors. The SET Index briefly dipped to the day's lowest level at 743.96 in the afternoon, before rebounding marginally to end the day at 748.30 on moderate turnover of Bt20.02 billion.

Bangkok Bank was off 2.63 per cent at Bt111, Siam Commercial Bank shed 3.15 per cent to Bt61.50, and PTT Exploration and Production slid 1.7 per cent to Bt116.

Bank of Ayudhya dropped 4.89 per cent at Bt17.50 on a knee-jerk reaction after the bank decided to sell a 25-per-cent stake to GE Capital Asia Pacific at Bt16 per share.

Anxiety that US inflation rate data raised the chance of a further interest rate increase by the Federal Reserve triggered the selling spree in stock markets across the globe, said Prudent Siam Securities chief analyst Pichai Lertsupongkit.

The US core consumer price index, which does not count food and energy, rose 0.3 per cent in April, above expectations of a 0.2-per-cent increase. The rise placed the annual rate of core inflation at 2.3 per cent, above the 2-per-cent limit the Fed is generally said to be comfortable with. The Fed this month jacked up its key rate by 25 basis points to 5 per cent.

"Although Thai shares remain cheap compared with others in the region, the lingering political turbulence and low economic growth would be major stumbling blocks for fresh funds to flow into the country. In the past several months, the Thai stock market rose 15 per cent while Japan jumped around 40-50 per cent," Pichai said.

He added that despite the ongoing initial public offering of Rayong Refinery Plc - one of Thailand's largest fund-raising deals, worth about Bt32 billion - foreign investors would shift their money from other energy stocks rather than put in fresh funds to snap up Rayong Refinery shares.

"The country's economy this year will grow around 4 per cent, while others including Singapore, India, Vietnam and China are expected to rise 6-7 per cent. That's why foreign investors will not inject fresh funds into the Thai stock market," he said.

 "Thai listed companies' sales in the first three months this year surged 20 per cent year on year, but their net profit increased only 8 per cent. This indicated that costs grew at a faster pace than profitability. Besides, energy companies were the major contributors for the total quarterly net profits."

MFC Asset Management president Wichit Akrathit rushed to allay the market's jitters by saying that the sharp fall would be a short-lived phenomenon.

The steep decline can be ascribed to foreign investors' portfolio adjustment, he said.

"The possible further interest rate hike in the US might result in foreign investors shifting funds to countries where they expect to receive higher interest. Another reason is competition to attract foreign investment to invest in mega-infrastructure projects of several countries in Asia, including China and the Philippines," he said.

"I believe the portfolio adjustment is aimed for short-term speculation and foreign investors will come back soon. They sold Thai shares with a net worth of Bt7 billion to Bt8 billion, which is less than 10 per cent of the over-Bt100 billion with which they bought Thai shares during the first quarter this year."

The company maintains its SET Index target at 780-800 points this year, he said, adding that economic growth would be 4-4.5 per cent, driven mainly by exports which are expected to grow by 15-20 per cent.

Oranan Paweewun

The Nation