Thai shares soar on Dow Jones surge

Sparked by the Dow Jones Industrial Average hitting a record high, Thai shares skyrocketed yesterday, despite the Bank of Thailand's warning of possible bubbles in the equity market.

In tandem with global bourses' bet on further quantitative easing and more liquidity, the Stock Exchange of Thailand Index yesterday hit a 19-year high for two straight days. It closed yesterday at 1,559.35 points on a turnover of Bt60.5 billion, slightly short of the record high of 1,753.73 points registered on January 4, 1994. Some brokers expect the index to rise further and test the 1,580 level soon. Foreign investors have been net-buyers this year, with a net-buy position of Bt1.85 billion.

Global investors are anticipating that developed economies will continue with their liquidity injection, as signalled by US Federal Reserve chairman Ben Bernanke. The extra liquidity is being channelled towards higher returns elsewhere, which is expected to lead to more inflows to developing economies.

At its meeting in February, the BOT's Monetary Policy Committee expressed concern over financial stability. Three key risks stem from the ongoing high credit growth, particularly for consumer credit, plus a potential surge in household debts. Aside from capital inflows and exchange-rate volatility, the BOT is also concerned about the rise in some asset prices, which if it continues, could potentially develop bubbles. And in the relatively low-interest-rate environment, investors could be induced to search for higher returns as well as speculate in riskier assets, especially in real estate and equity markets.

"The MPC therefore deemed it necessary to closely monitor the development of these risks and, if warranted, will implement an appropriate policy mix to guard against potential imbalances in the economy going forward," it said in the minute.

Despite risks, the MPC anticipates further economic expansion. It is expected to announce a higher growth forecast for this year at its next meeting in April.

The stock market is back. Five and a half years after the start of a frightening drop that erased $11 trillion (Bt327 trillion) from stock portfolios and made investors despair of getting their money back, the Dow Jones Industrial Average has regained all the losses suffered during the Great Recession and reached a new high.