Chaos, weak US data could further depress Thai stocks

Economy February 05, 2014 00:00

By The Nation

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Thai shares could weaken for the foreseeable future, given the unfavourable domestic situation as well as external factors led by disappointing US manufacturing data, brokerage houses predict.

The Thai bourse and the rest of Asia slumped yesterday – led by a 4-per-cent fall in Tokyo – after a huge sell-off on Wall Street as the poor US data compounded already-deep fears about emerging markets.

The Stock Exchange of Thailand (SET) composite index lost 15.97 points or 1.24 per cent to close at 1,276.84 points on turnover of Bt24.95 billion.

Traders were also spooked by a warning from US Treasury Secretary Jacob Lew, who said his country’s borrowing limit would be reached on Friday, renewing fears of a congressional stand-off and possible default.

Asia Plus Securities said in a research note that local institutional investors had so far this year been net buyers of Thai shares, with purchases since January 14 outpacing sales by more than Bt10 billion. It noted that this matched the Bt9-billion amount raised by five trigger funds.

"It’s possible that institutional investors’ [activities that] supported the index in the past two weeks will subside, while foreign investors continue selling Thai shares. Meanwhile, as the political situation remains a risk, coupled with a fall in global equity markets, investors should be extremely careful," said the brokerage.

Foreign investors remained net sellers of Thai shares yesterday, with sales outpacing purchases by Bt4.9 billion. In two days, their net sales hit Bt7.89 billion, pushing the year-to-date level to Bt21.56 billion.

As of yesterday, institutional investors’ net-buy position had reached Bt1.38 billion, while foreign investors’ net-sell position had hit Bt21.56billion.

Sanupong Suthadtumakul, an analyst at Phillip Securities (Thailand), said tapering of the United States’ monetary stimulus remained a negative factor for emerging markets, prompting capital to flow out to the US and other developed countries.

Several emerging-market currencies have confronted sell-offs, and several countries, including Turkey, have jacked up their benchmark interest rates to counter capital outflows, which could slow down their economies as borrowing costs rise.

This year, emerging markets have been affected by the US quantitative-easing reduction and China’s lower-than-expected economic figures, which presented a negative short-term picture for emerging markets, Sanupong said. However, in the long term, their prospects remain satisfactory.

"Thailand and its currency could be impacted by this issue. The February 2 election passed off quietly and without the violence that had been expected. However, a new government cannot be formed as the number of House representatives has not reached 95 per cent [of the total]," he added.

As the political conflict could be prolonged throughout the year, Sanupong said the Thai economy could be adversely affected.

The baht appreciated sharply to 32.75 per US dollar yesterday from an intra-day high of 32.95, as the greenback tumbled against major currencies due to weak US economic data.

The brokerage house targets the SET Index at 1,550 points this year, with a lower-range figure of 1,200, while listed companies’ profits are expected to grow 12.3 per cent on average.

If the political situation is prolonged, listed companies’ 2014 profit estimates may be revised down, Sanupong added.

"We suggest commodities form 10 per cent of portfolios to mitigate risks. We prefer oil to gold, suggesting trading investment in a range of US$92-$100 [Bt3,014-Bt3,276] per barrel. Gold prices may go down as a result of the US stimulus tapering. Gold should be held for risk diversification on expectation of this year’s movement in a range of $1,200-$1,400 per ounce," he said.

US stocks took a hammering on Monday after the Institute for Supply Management said its purchasing managers’ index (PMI) of manufacturing activity had fallen 51.3 in January from 56.5 in December. A figure above 50 indicates growth, while and anything below points to contraction.

On Wall Street, the Dow closed down 2.08 per cent, the S&P 500 fell 2.28 per cent and the Nasdaq by 2.61 per cent.

The PMI results – following worse-than-expected jobs data in January – raised concerns that the US economy may not be as strong as initially thought, a worry for investors less than a week after the Federal Reserve said it would reduce its stimulus, citing signs of a strong recovery.

They also come as emerging markets are rattled by fears of capital flight caused by the Fed’s tapering as well as signs of weakness in China, a key driver of global growth.

Credit Agricole analyst Mitul Kotecha told Agence France-Presse that "suffice to say investors should steer clear of risk assets (such as equities) over the short term, as the turmoil does not look like it will be over anytime soon".

"A combination of tapering, a confluence of country-specific emerging-market country concerns and weaker growth in China provide the backdrop for a volatile few weeks, if not longer, ahead," he said in a note.

Kotecha warned that officials would have to start using special measures after February 7 to keep the US paying its bills. While previous stand-offs have ended in agreement between Republicans and Democrats, they did not come before causing global market turmoil.