Repeat of China crisis would hurt Thai investors

Economy July 13, 2015 01:00

By ERICH PARPART
THE NATION

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ANOTHER nosedive in China's stock markets could face-plant its demand for raw materials and that would further affect Thai investors and exporters.



Chinese companies that filed for a trading halt will, one way or another, return to trade one day and no one knows if another panic sale is waiting around the corner.

About 1,400 Chinese companies, or more than half of those listed in Shanghai and Shenzhen, filed for a trading halt on July 7 in an unprecedented attempt to prevent further losses from the latest correction of China’s stock markets.

On the Shanghai exchange, 365 companies, or 33 per cent of all stocks, suspended trading. In Shenzhen, 992 companies were halted, or 56 per cent of the total.

China’s Shanghai Composite Index surged by 150 per cent from June 2014-June 2015 before plunging 32 per cent by July 7 and rebounding via big gains on July 9 and 10 to close 4.5 per cent up last Friday.

From another perspective, the index went on a roller-coaster ride from 3,350.52 points on January 5, the first day of trading this year, to 5,166.35 on June 12 on a rally fuelled by borrowed money.

June 12 was this year’s peak and the day when China’s securities regulator announced a new limit on margin lending. Then the index plummeted to 3,507.19 on July 8 and recovered to close at 3,877.80 on Friday.

“The plunge hurts Thais who invested in Chinese stock markets as the trouble on the mainland has affected the Chinese enterprises in Hong Kong’s Heng Seng index, where most of the mutual funds that Thai investors invest in are located,” Kittikun Tanaratpattanakit, a senior data analyst at Morningstar Research (Thailand), said last week.

“The next key number is 1,400, as around 1,400 companies will return to trade. But we don’t know whether those investors who are holding these shares will sell or continue holding them. The market capitalisation of the 1,400 is 40 per cent of the mainland markets and another panic sale will make it suffer again,” he said.

“Around 700 companies have requested a trading halt but 700 others have been ordered to stop, so we don’t know if all of them will return at once, or all of them are ready, what the communist-led government will do. And these are uncertainties that continue to surround the potential of another tumble in the dragon’s markets.”

Vallop Vitanakorn, vice chairman of the Thai National Shippers’ Council, said another plunge in China’s stock markets would begin to eat into real capital and that will lower the country’s demand for products, which will hurt not only Thailand but also its largest trading partner, which is Asean.

The other nine Asean countries accounted for 22.7 per cent of Thailand’s exports in the first five months of this year, which is more than double China’s 10.8 per cent.

“Another plunge means less demand for raw materials and consumer products from China and that will hurt Asean and Thai exports. We maintain that the Thai export sector will contract by 2 per cent this year but our chairman (Nopporn Thepsithar) has mentioned that it could go down to 3 per cent if there is another plunge,” he said.

“I believe that the negative 2-per-cent mark is where the sector will contract to if the Commerce Ministry manages to jumpstart our four main exporting industries including automobiles and parts, that is already doing well this year, along with computers and parts, jewellery and plastic beads. If not, then things could get worse,” he added.

The top agriculture and industrial products that were shipped from Thailand to China in the first five months were electronic machines such as computers, plastic beads, tapioca, agricultural rubber, chemicals, industrial rubber, electronic appliances such as televisions, raw wood and products, and agriculture products that are used for industrial purpose.

They accounted for 14.9 per cent, 12.3 per cent, 12.0 per cent, 9.2 per cent, 8.2 per cent, 6.6 per cent, 6.0 per cent, 4.6 per cent and 3.9 per cent of the country’s exports to China.

Pimonwan Mahujchariyawong, deputy managing director of Kasikorn Research Centre, is more optimistic.

The previous panic sale did not affect China’s real sector and economy and the depreciation of baht to about 34 per US dollar should be able to stop any further export contraction than the 1.7 per cent predicted by the research house, she said.

KResearch expects China’s economy to expand by 6.9 per cent this year and the potential of a second panic sale will remain to be seen.

“The Chinese government will not allow gross domestic product expansion to drop that much lower than 7 per cent, so demand will continue to be there.”

“And if the government can introduce measures that will make investors look at the fundamentals rather than getting panicky, then things should be okay as the indexes’ price-to-earnings ratio is at an acceptable level,” she said.