Tisco Securities managing director Paiboon Nalinthrangkurn said foreign investors felt there was a heightened investment risk in the Thai stock market following the harsh measure implemented by the Bank of Thailand to counter baht speculation and the Cabinet's approval of the draft Foreign Business Act.

"The Thai stock market accounts for a small percentage in the MSCI [Morgan Stanley Capital International] Index, and implementation of recent policies has increased investment risk in the Thai stock market. Foreign investors' trading pattern now is buying cheap Thai shares and selling them at a higher price to lock in profit regardless of stock fundamentals," Paiboon said.

The Thai stock market shed more than 10 per cent in less than a month, battered by the central bank's 30-per-cent reserve withholding requirement, the New Year's Eve bombings in Bangkok and the amendment draft Foreign Business Act.

"What foreigners don't understand is the capital-control measure. If the measure continues for a long time, foreign investors eventually will stay away from the Thai stock market," said Paiboon. "If you expect the Thai stock market to hover at the 700 psychological level, local investors will have to be the main driver, and foreign investors might follow suit."

Paiboon's comments highlighted those by analysts who say the euphoria over Thai shares in the past few days stems from a buying spree by foreign investors to cover their short position.

Paiboon said the lowest level estimated by brokers is 520 points, while the highest is 780.

Somchai Gawsawadikul, chief of international equity sales at Asia Plus Securities, agreed with Paiboon by saying that foreign investors buy Thai shares for only short-term investment purposes.

He said some foreign funds had already sold out the Thai shares in their portfolios and would not re-enter the market for another year.

"Foreign investors earlier estimated that the central bank would opt to cut interest rates, given the eased inflation rate, the good shape of the current account and the low loan growth rate. But when the central bank implemented its capital-control measure, they were shocked and unloaded Thai shares. The government's policy direction is the determining factor whether they will turn back," Somchai said.

Meanwhile, Fitch Ratings (Thailand) yesterday affirmed its ratings of Advanced Info Service (AIS) and Total Access Communication (DTAC), following the proposed amendments to the Foreign Business Act.

The agency noted that in AIS's case, with its current strong financial position and dominant market status, a partial divestment of Temasek Holdings would have minimal impact on AIS's credit profile.

The amended Act may lead to a reduction in Telenor's current 69-per-cent stake in DTAC. However, the agency notes that Telenor has indicated it would continue to maintain strong operational involvement in and support of the company, which would maintain DTAC's credit profile. However, a significant reduction of Telenor's stake to less than 49 per cent, resulting in a loss of control of DTAC's management and strategic functions, could negatively affect the rating.