Market sheds 50 points on record volume of Bt101billion; Kittiratt says drop nothing to panic about given recent weeks' strong gainsThe Thai bourse plunged steeply yesterday due to the effects of the Cypriot bail-out and banking crisis, as well as domestic hiccups, but managed to show signs of resilience with daily turnover swelling to Bt101.36 billion - the highest in its 39-year history.
It easily surpassed the previous record of Bt81.27 billion, registered on January 10.
"Looking forward, we remain optimistic of the long-term prospects for the Thai market," said Chanpen Sirithanarattanakul, head of research at DBS Vickers Securities (Thailand). "At current levels, the market is trading at 2013 PE [price-earnings ratio] of 13.6 times, which is still attractive given strong projected earnings growth of 17.4 per cent for this year."
DBS expects the index to rise to 1,688 points in the next 12 months. Despite the 3.30-per-cent loss yesterday, the target remains intact.
The Stock Exchange of Thailand (SET) composite index lost 50.55 points yesterday to close at 1,478.97 points, narrowing the nearly 4-per-cent loss seen in the morning session.
Tisco Securities dubbed yesterday's slump part of a correction following the sharp spike in the index in recent weeks. It foresees the correction lasting three to four weeks, until after the Songkran Festival, pending clarification of the Bt2-trillion infrastructure borrowing bill and the amnesty bill. The borrowing bill is slated for House debate on March 28-29.
SET president Charamporn Jotikasthira said at a hastily called press conference yesterday that the market fall serves as a reminder to all investors that profits and losses are intertwined when it comes to stock investment. "The volume at Bt100 billion does not reflect speculation. It reflects the timing that some investors want to unload shares, particularly shares of highly-speculated stocks. Overall, the index was down by only 3 per cent, but highly-speculated stocks were down by 9 per cent," Charamporn said. In particular, he is concerned about individual investors.
"It's just a market correction," echoed Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong. "Profit taking can occur after sustained increases. It's not something to panic about," he said, pointing out that there has been no change in the country's economic fundamentals.
The Thai bourse, experiencing its biggest weekly slump since the global financial crisis of 2008, joined some regional markets in showing losses. European markets also opened with losses yesterday as concerns about Cyprus and the euro zone escalated.
While foreign investors appear to have become more risk-averse, Thailand remains attractive to foreign investors. According to Bloomberg and Tisco Research, this month through Thursday, foreign inflows to the stock market reached US$167 million (Bt4.8 billion). They remained net-buyers yesterday, but with a small
net-buy position of Bt73.55 million.
Aside from the Cypriot crisis, domestically, unfavourable factors prevailed. Investors were concerned that the bourse may increase margin requirements on equity trading. The exchange may increase the level of collateral that customers must maintain in their trading accounts to 20 per cent of their credit line, from 15 per cent. There were also fears that the Bank of Thailand will launch capital control measures to stem the baht's appreciation, which could encourage outflows from the country. The baht yesterday weakened slightly against the US dollar to 29.30 in the afternoon, after touching 29.08 on Wednesday, the strongest level since a devaluation sparked the Asian financial crisis in 1997.
"I can assure that the market slump has nothing to do with investor fears that the central bank would implement capital controls," said Bank of Thailand Governor Prasarn Trairatvorakul. "It has nothing to do with capital inflows, as most of the inflows are channelled to the bond market. In the past two months, foreign capital inflow to the stock market has been low. The sharp fall followed sharp spikes, which led to warnings against investment in some stocks."
BOND MARKET ATTRACTING FUNDS
In this regard, investment guru Banyong Pongpanich said that should there be any inflows, the bond market would be the hardest hit. In 2008, only $5 billion of $90 billion holdings of Thai equities flowed out following the "Hamburger crisis" in the wake of the collapse of the US sub-prime market. However, should anything happen, he expected outflows from the bond market of nearly $30 billion.
Through Thursday, global funds purchased $442 million more sovereign debt than they sold this week, taking this month's net purchases to $2.5 billion, Thai Bond Market Association data show. Overseas funds poured in a net $2.7 billion in February and $3.7 billion in January.
The MSCI Asia Pacific Index lost 0.6 per cent to 134.4 as of 4.58pm in Hong Kong, showing that Thailand was not alone in the region in registering losses yesterday as Cyprus scrambled to avoid a collapse of its banking system and reports showed Europe's manufacturing decline steepening.
"It seems that the downturn could intensify in Europe," said Matthew Sherwood, head of investment markets research at Sydney-based Perpetual Investments, which manages about $25 billion.
"Its leadership keeps looking at the hole in the hull and wondering why they are waist deep in water, rather than fixing the damage," he said.
Cyprus is now working on "Plan B" to stave off a banking crisis. Yesterday, it was reported that its finance minister failed to win a loan from Russia. In return for the 10 billion euro (Bt378.7 billion) bailout, it is obliged to raise another $7 billion. While privatisation should raise about a billion euros, the Cypriot government is being forced to tax depositors for the remaining 5.8 billion euros. Germany has so far refused to extend as much as 17 billion euros to the country, given that it would raise Cyprus' public debt to 145 per cent of gross domestic product (GDP).
To avoid a bank run, when depositors would channel their money out of banks in Cyprus, banks in the country have been closed. They will not reopen until March 26. Although cash machines are being refilled, banks cannot stay shut indefinitely. The European Central Bank has said it will cut off funding for the banks after March 25 if a deal is not in place by then.
The European Commission recently forecast that Cyprus, whose economy shrank by 2.3 per cent last year, would contract by 3.5 per cent in 2013.