Thursday 'panic' short-lived, currency bounces back; SET closes down 0.6%
Panic in the foreign-currency markets after Thursday’s coup causes the baht to depreciate but the effect was short-lived, the Bank of Thailand said.
BOT spokeswoman Roong Mallikamas said there was a mild panic initially that led to a weakening of the baht by 0.23 against the US dollar on Thursday but it soon bounced back.
“Some investors were uncertain about the coup situation at the start, so they had to protect themselves from risks, which is in the nature of investors and understandable, but it caused the baht to depreciate quite rapidly by 0.23. However, it bounced back after a short period of time,” she said.
Roong said the currency yesterday morning was moving within the range of 32.48-32.57, which was not much different from its value before the coup. As of 6pm it was 32.64.
The baht was valued at 32.669 per dollar on Wednesday.
The SET Index yesterday dropped 0.60 per cent to close at 1,396.
“If there is a situation that causes the currency’s value to change too rapidly, such as a continuous panic situation or if there is a currency movement that is not in line with the basic fundamentals of the economy, the BOT will have the duty to consider stepping in to take care of the stability of the financial market,” Roong said.
She said the current stability in the financial market was based on a number of factors, including its ability to absorb political news. Some market players also believe that the coup could be a changing point from the chronic uncertainty of the past several months. “Thailand’s financial market is deep and wide enough that there are variety of market players who can create a range of views and not flock in the same direction. Therefore it can be said that the country’s financial market is quite stable, but stability does not mean no movement.”
Roong said that after the news of the coup came out, government bond yield increased slightly, by 4-5 basis points, but fell almost immediately to where it was before the Army’s seizure of power. This showed that investors in the bonds were not panicked by the situation.
As for the movement in the Stock Exchange of Thailand yesterday, Roong said some investors had sold and closed down their status to wait and see how the political situation develops, and the index fell by 20.75 points in the morning.
She said the stock market would probably experience some capital outflow but not much since there was little change in prices.
The SET Index yesterday dropped 8.37 points to close at 1,396.84. SET chairman Sathit Limpongpan said the morning session saw foreign net sales of Bt3.6 billion while individual investors purchased a net Bt4 billion, indicating that the latter had confidence in the market and understood the present political situation.
The SET will work closely with the Association of Thai Securities Companies to provide more information to foreign investors that Thai-listed firms have solid fundamentals, he said.
SET president Charamporn Jotikasthira said the market had experienced several crises over the years, so it had gained strength to weather each new one. He also noted that foreign investors’ sales in the two days following the declaration of martial law were worth Bt11 billion, not a huge amount. Foreign investors’ sales were worth Bt200 billion last year.
According to Fitch Ratings, the military takeover is not in itself a negative sovereign-ratings trigger. The key factor for Thailand’s sovereign credit profile is the speed at which the country can move towards installing an effective, fully functioning government without sparking a further escalation in political instability.
If a process for political stabilisation is not in place by early in the second half of this year, then the rating agency would expect more lasting damage to the economy that could ultimately be negative for Thailand’s sovereign credit.
Fitch expects to lower its forecast of 2.5-per-cent growth for 2014 for Thailand on the back of the political uncertainty and weak first-quarter data showing that gross domestic product contracted by 0.6 per cent year on year. The government has already cut its own growth forecast to a range of 1.5-2.5 per cent, from an initial 3-4 per cent.
The economy is reasonably well positioned to rebound quickly from short negative shocks, it said.
Suchart Thanathitiphan, executive director of the Thai Bond Market Association, said the coup could put negative pressure on the stock market rather than the bond market, given the different types of investors in each.
No controls have been put on financial transactions and businesses, and people continue to live their normal lives, he said.
Foreign investors in the Thai bond market are relatively confident with the country’s economic fundamentals and the coup should provide more ways out and allow foreign investors to gain confidence, he said.
In the four days following the declaration of the martial law on Tuesday, foreign investors sold Bt600 million worth of Thai bonds on Monday and Bt2 billion on Tuesday before purchasing Bt2 billion on Wednesday and Bt3.5 billion on Thursday.
“Upgrading in response to the coup may have some impact on the bond market, but not much, as it may have on the stock market,” Suchart said.
“The situation could slow down purchases or prompt sales in the short term before a buy-back. When everything eases, there’s a chance for foreign capital to return.”