Kittiratt acknowledges effect of political tensions on SET
January 04, 2014 00:00 By Suphannee Pootpisut
Expresses concern about continued depreciation of baht
The country’s caretaker finance minister concedes that the current political unrest has dragged down the Stock Exchange of Thailand’s benchmark index.
He is also worried about the baht’s continued depreciation.
The Kingdom’s political problems have negatively affected the overall economy and the stock market, caretaker Deputy Prime Minister and Finance Minister Kittiratt Na-Ranong said yesterday, while also expressing concern over the rapidly weakening currency.
He said the SET Index’ plunge of more than 5 per cent so far this year was not normal, and was due mainly to local political developments.
However, he pointed out that other Asian stock markets had also seen drops in their indices, such as in South Korea, where the Kospi had fallen 2.2 per cent partly because of the weakening of Japan’s currency, which had also affected Thai exports.
The SET Index dropped another 0.58 per cent to close at 1,223.62 points yesterday.
It has tumbled 12.65 per cent in the past three months, and 5.25 per cent since the beginning of the new year.
Investors, particularly institutional ones, are concerned about this, said Kittiratt, although he said he believed they would return when the political problems were resolved.
“Short sales have taken place, as investors are not confident about the political situation. If the situation eases, the stock market will resume its stability,” he said.
He also expressed concern over the overall state of the Thai economy and the rapidly weakening baht, which has been affected by the unclear political situation, with confidence in investment and consumption having been eroded.
He noted that while the nation is in the hands of a caretaker government, investment in new public projects could not be made.
“Mega-projects may have to wait for the Constitutional Court’s consideration [of a borrowing bill] and a new Cabinet. Therefore, large investment may be delayed from the full period of this fiscal year” through September 30, Kittiratt said.
The prolonged political protests, which started in early November and forced Prime Minister Yingluck Shinawatra to dissolve Parliament last month, could damage the economy this year and deter investors, he warned.
The Fiscal Policy Office last week cut its estimate for 2014 economic growth from 5.1 per cent to 4 per cent, citing the export slowdown and political instability.
The situation is not helped by the fact that it remains unclear whether the general election scheduled for February 2 will take place, and when a new government will be formed.
“People are still held in suspense trying to figure out how this will resolve itself,” Bloomberg quoted Leong Sook Mei, Southeast Asian head of global markets research at Bank of Tokyo-Mitsubishi UFJ in Singapore, as saying.
The baht could weaken to 34 per US dollar by June, she said.
Although the baht’s depreciation may benefit the export sector, imports – particularly of energy – will be adversely affected, Kittiratt said.
The baht weakened 0.5 per cent to 33 per dollar during the course of the past week, according to Bloomberg.
Analysts at Asia Plus Securities predict that Asian currencies will continue to fall as the global economy recovers, especially in the United States, while the baht will be further affected by the current unclear political situation in this country.
The US has begun showing signs of recovery. Last month, its Purchasing Managers’ Index (PMI) registered at 57 per cent, the second-highest reading in 2013 and only 0.3 percentage point below November’s reading of 57.3 per cent.
As of now, the baht is trading at around 33 per dollar, an almost four-year low, and the current political situation is another main factor, besides the global economic recovery, that will continue to deter investors from putting money back into this country.
Economists at Kasikorn Research Centre say two factors affecting sentiment on the baht are domestic political unrest and the expectation of continued QE tapering this month, as the latter has intensified outflows concerns.
Banks say the baht’s depreciation will have a positive impact on business operators, mostly exporters, while most large-scale importers have already hedged on foreign exchange to protect themselves from currency volatility.
Sayam Prasitsirigul, head of SME banking at Bank of Ayudhya (BAY), noted that most larger enterprises had hedged on forex, while small importers rarely do so because their volumes too small to cover the administrative cost of hedging.
He noted that business clients were more worried about the baht strengthening than depreciating.
CIMB Thai Bank executive vice president Jiratchayuth Amyongka said most importers had already hedged on forex as they are aware that the baht’s depreciation can hurt them if they do not take precautions. He added that the bank’s customers were more worried about the political unrest than the baht’s movements because government policy had a big influence on their investments.
The bank has reviewed its SME business plan by focusing more on small and medium-sized enterprises in main provinces such as Chiang Mai and Khon Kaen. Meanwhile, the bank will be more cautious on dealing with large enterprises in the construction sector, which is expected to be affected by delayed government investment.
Meanwhile, Manatase Annawat, deputy managing director of The Emporium Shopping Complex on Bangkok’s Sukhumvit Road, said the weakness of baht would have positive impact on the upscale mall as it would attract more foreign tourists into the Kingdom to benefit from cheaper travel and accommodation. Meanwhile, it will reduce the number of Thais travelling abroad.
“As a shopping mall, we expect to enjoy some benefit from an increasing number of foreign shoppers, who currently account for about 40 per cent of our clients,” he said.
However, the number of inbound tourists would depend on the local political situation, he added.
Manatase said the current depreciation of the baht had not yet affected the prices of The Emporium’s principal luxury products. Some top brands have lengthy order lead-times of six months to a year.
Many importers of those luxury goods have hedged against some fluctuation of the currency.