Lehman's collapse adds to SET woes

No end is in sight for the ailing Thai stock market, analysts warned. 

The SET Index dropped marginally at the opening bell and kept falling to a day's low at 640.03 before retreating to close at 642.39. It seemed headed for the 622.27 close on January 10, 2007, as Lehman's collapse overshadowed the lifting of the state of emergency in Bangkok.

Turnover was thin at Bt7.45 billion.

Foreign investors still sold Thai shares but at a slower pace yesterday with a net amount of Bt294.3 million, compared with Bt1 billion to Bt3 billion a day after the declaration of the state of emergency on September 2. Foreign investors have so far this year sold Thai shares with a net worth of more than Bt110 billion.

Selling pressure was seen in banking stocks. Bank of Ayudhya plummeted 4.4 per cent to Bt19, Kasikornbank was off 3.7 per cent at Bt65, Siam Comercial Bank dropped 3.33 per cent to Bt72.50 and Bangkok Bank fell 2.65 per cent to Bt110.  

Lehman's filing for bankruptcy, after its approaches to several institutional investors - including Barclays and Bank of America - about buying the bank had failed, had a ripple effect on stock markets around the globe.

Financial institutions worldwide have reported more than US$500 billion (Bt17.29 trillion) in losses and writedowns in the past year and the creditmarket collapse has erased $11 trillion from global stocks in that period.

Indonesia's Jakarta Composite index yesterday took the hardest blow in the region, falling 4.7 per cent, followed by the Philippine Stock Exchange Index at 4.16 per cent and Taiwan's Taiex Index at 4.1 per cent. Other Asian stock markets declined in a range of 1 to 2 per cent, while the markets in Japan, Hong Kong and China were closed for a holiday.

The baht initially rose as much as 0.5 per cent to 34.50 a dollar, before later trading at 34.56 in Bangkok. The currency slid to 34.86 last Thursday, its weakest level since August 2007.

Gold jumped as the dollar fell and Lehman filed for bankruptcy, boosting the metal's appeal as a store of value. Gold for immediate delivery rose 1.6 per cent to $777.59 an ounce.

In Thailand, the price of 96.5percent pure gold bullion and ornamental gold yesterday increased Bt100 per baht weight to Bt12,850 and Bt13,250, respectively.

Supakorn Sujirattanavimol, strategist at KTB Securities, said nervousness over Lehman had led to a selloff in banking stocks worldwide.

"Many people at first estimated that Thai shares would rebound after the state of emergency was lifted, as they believed foreign investors would return to the Thai stock market. But the problems at the US financial institution changed the day's focus and foreign investors will not now fly back to the Thai stock market for a while. In fact, their selling spree might continue," she said.  

The next support for the Thai stock market is at 632, she added.

"Some people say Lehman may not be the last case [of US investmentbanking failure], there may be more to come," acting Finance Minister Surapong Suebwonglee said. "We will monitor the situation closely."

An analyst at Kiatnakin Securities said the foreign investors' selloff would continue, as they need money to increase the liquidity of their parent firms in the US.

He said the nomination of People Power Party deputy leader Somchai Wongsawat as the next prime minister would prompt further protest. Somchai would be seen as another nominee of ousted prime minister Thaksin Shinwatra as he is his brotherinlaw, he added.

The analyst recommended that investors slow down their plans in order to digest the situation.

The next SET support level is estimated at 635 points, the analyst said.

Kasikorn Securities' senior vice president for the Research Department, Kavee Chukitkasem, echoed other analysts' views by saying that Lehman's collapse had battered stock markets around the world.

Locally, investors must keep an eye on who will be the next prime minister, as well as the People's Alliance for Democracy next move now that the state of emergency has been revoked.

Despite the steep fall in the Thai equity market, it is not the right time to pile up stocks, he said.

Kavee suggested investors hold cash at about 80 per cent of their investment portfolio and reduce their stock exposure accordingly in order to mitigate risk.

However, Siam City Research Institute said in a note that investors should accumulate stocks related to domestic consumption, betting that these plays would rebound strongly after the local political scene unfolds.

Banks, retail, communication and hospitals should be snapped up, the research house said.