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Published on August 21, 2007

Thai shares yesterday rallied 4.43 per cent, the biggest one-day gain this year, propelled by the surprise US Federal Reserve discount-rate cut and prospects of a general election and a return to political stability following approval of the draft constitution in the referendum on Sunday.

However, the bourse's gain was the third lowest among its regional peers, higher only than the Japanese and Malaysian markets at 3 per cent and 4.3 per cent, respectively. Other stock markets in the region closed between 5 and 7 per cent higher.

The SET Index rose from the opening bell and finished at the day's high of 792.02. Turnover was moderate at Bt23.15 billion.

After dumping Thai shares for more than two weeks, foreign investors became net buyers yesterday to the tune of Bt622.16 million.

PTT rose 5.15 per cent to Bt286, Thai Oil was up 3.42 per cent at Bt75.50, and PTT Exploration and Production jumped 3.67 per cent to Bt113.

The Fed's unusual decision to cut its discount rate, which is charged on direct loans to banks, from 6.25 per cent to 5.75 per cent gave a big boost to markets across the world, an analyst at Ayudhya Securities said. The move was aimed at increasing liquidity in the financial system following the US sub-prime mortgage woes.

Investors were also upbeat by the majority approval of the new Thai constitution, which paves the way for a general election soon, the analyst said.

The brokerage has maintained its 12-month SET Index target at 930-1,000 points, assuming a clearer picture of the political situation and an improvement in the economy and listed companies' earnings.

The analyst believes the plunge in global stock markets, triggered by fears of a credit crunch following the sub-prime mortgage crisis, will end

soon.

The Thai market is still attractive for three- to six-month investments, given cheap stocks, the strong financial position of listed companies and a 4-per-cent dividend yield, he said.

Pichai Lertsupongkit, senior vice president at Thanachart Securities, said the overall sentiment had improved as investors believe the impact of the sub-prime problem will be limited following the Fed's discount-rate cut and hefty liquidity injections by many central banks.

However, the upside gain for the Thai stock market is limited due to the rally yesterday, he said.

Pakorn Malakul Na Ayudhya, a member of the Stock Exchange of Thailand's board of governors and prime candidate for the post of SET chairman, said the result of referendum had helped boost the bourse as investors are increasingly confident of a clearer political situation and are looking forward to general election.

The Fed's lowering of its discount rate helped restore foreign investors' confidence in the short term, witnessed by the skyrocketing Dow Jones and regional stock indexes.

Olarn Chaiprawat, an adviser to the Fiscal Policy Research Institute, expressed optimism that the US sub-prime problem had already settled down after the Fed slashed its discount rate, and it and European central banks had injected money to rescue some funds affected by large withdrawals.

"The central banks' back-up will help stop the problem growing if there is no further problem," he said.

Finance Minister Chalongphob Sussangkarn said the result of the referendum had eased the political situation, even though differences of opinion remained. The divisions should be cleared up by the political parties in order to improve the political and economic environment, he said.

Pramon Sutivong, chairman of the Thai Chamber of Commerce, said it would be acceptable if the general election were delayed until January.

"If the delay is caused by legal technicalities, then it's fine. It's reasonable to have the election in January," he said.