SET, Asian stocks plunge

Written by Writer on Tuesday, October 28th, 2008

Fears of lengthy global recession lead to rout

NUNTAWUN POLKUAMDEE

Thai stocks nosedived yesterday as stock markets across the region fell sharply on continued fears of a prolonged global economic recession.

The Stock Exchange of Thailand (SET) plunged 10.5%, resulting in automatic “circuit-breakers” being activated for the second time this month. Trading was halted for 30 minutes just after 4pm after the index fell by 10% for the day, and reopened only briefly to settle outstanding transactions.

The main index closed yesterday at 387.43 points, down 45.44, in thin trade worth 11.78 billion baht.

The losses yesterday were mirrored elsewhere in the region, with Hong Kong stocks closing down 12.7%, Manila off 12.3% and Tokyo’s Nikkei 225 down 6.36% to its lowest level in 26 years.

Bearish sentiment also sent European stocks spinning lower in early trade yesterday, as investors ignored calls for calm by the G7 industrialised nations to instead focus on weak economic data and corporate earnings downgrades that suggested that the full damage of the recession had yet to fully materialise.

The Thai market, now at its lowest level since May 2003, has seen more than three trillion baht in market value wiped out since January.

But despite the steep losses - more than 50% since the start of the year - few analysts are willing predict a turnaround soon, considering that the global economy is grappling with the worst crisis since the Great Depression.

SET president Patareeya Benjapolchai offered a resigned shrug when asked about the market yesterday.

“The global economy is clearly locked in a recession. Thai stocks are falling with others in the region,” she said.

Mrs Patareeya urged investors to consider that Thai stocks by most measures are significantly stronger today than during the last crisis over a decade ago.

According to the SET Research Institute, listed companies now have a debt-to-equity ratio of less than one times, while valuations have shrunk to below six times, an incredibly cheap level by historical standards.

Leading all losers yesterday were energy stocks, which lost 13.65% on the day as crude oil prices fell below US$60 per barrel on continued fears of weaker demand due to the recession.

Banks lost 12.86% yesterday on concerns over rising credit defaults with a weaker economy.

Foreign investors continued their year-long sell-off of Thai stocks with a net sell position of 2.21 billion baht.

Kasem Prunratanamala, head of research at CIMB-GK Securities, said the declines yesterday came amid a full-blown investor panic in the region.

“The trend continues to be poor. Investors are running due to recession fears, and the uncertainty about how deep or protracted the contraction might get,” he said.

Mr Kasem said a full recovery for the global economy could take years, considering the depths of the problems in the US and European economies.

“The situation is far different today than in 1997, when the crisis was focused on Thailand and Asia,” he said.

“Back then, the US, Europe and even Japan continued to show strong growth and maintained investment, which helped Asia in turn recover quickly.”

Mr Kasem said Thailand’s economy, while almost certain to slow in 2009, remained relatively strong.

The SET also was an indirect beneficiary of the fact that foreign capital had begun leaving several years ago due to domestic political instability, resulting in a lesser impact from capital outflows than other regional markets.

According to the Bank of Thailand, economic growth will slow to as low as 3.8% next year from 4.3% to 5% growth this year as export growth declines due to the global economic slowdown.

Arporn Sawangpak, research manager at DBS Vickers (Thailand), said domestic political instability and the global economic crisis were the dominant factors driving the market yesterday.

Fears that violence could erupt between supporters of exiled former prime minister Thaksin Shinawatra and anti-government protesters under the People’s Alliance for Democracy have been growing in recent days.

Bangkok Post
Tuesday October 28, 2008