Tuesday, December 19, 2006

Mai Vee Vella Sarm Lap Koun
Dejavu 1997?

As reported in Bloomberg: Thai stocks plunged after regulators yesterday told banks to lock up 30 percent of new foreign- currency deposits for a year to curb speculation. The baht dropped the most in three years. The benchmark Stock Exchange of Thailand index slid as much as 8.9 percent, the heaviest in more than three years, and the baht almost doubled yesterday's 0.8 percent drop after central bank Governor Tarisa Watanagase said she was ``confident'' the measures will reduce inflows. The currency, Asia-Pacific's best performer, had surged 16 percent this year before yesterday as overseas investors bought the nation's stocks. ``Foreign investors will rush to take money out as they're afraid the baht may weaken further,'' said Visit Tantisuthorn, Secretary General of the Government Pension Fund, the country' biggest fund with more than US$7.8 billion in assets. ``It'll help exporters and the country's trade balance.'' The baht climbed this year to a nine-year high yesterday amid optimism the economy will accelerate after a Sept. 19 coup ended a political deadlock that curbed spending and confidence. Exporters including Thai Union Frozen Products Pcl, the world's second-biggest tuna canner, on Nov. 16 asked the central bank to stem baht gains that are undermining their competitiveness. The baht lost as much as 1.5 percent, the biggest fluctuation of any currency today, to 36.08 against the dollar. It traded at 35.66 at 10:03 a.m. in Bangkok. It last fell more on Sept. 14, 2003. The Stock Exchange of Thailand index slid the most since February 2003. Starting today, overseas investors buying the baht will only be able to invest 70 percent of what they transfer and recoup all of their funds if they keep the money in Thailand for more than a year. Those who withdraw the reserved amount in less than a year will be fined 33 percent of that 30 percent portion.

My Lime Sen: Rather than conjuring up memories of 1997, this time around, the Tahi central bank acted well. The speculative funds kept pouring in over the last 6-9 months, with silly speculation that foreign investors were busy snapping up expensive villas and plush condos in Thailand. All pure speculation, in fact the speculators turned it up a few notches over the last 3 weeks despite uncertainty with the political junta government and the ouster of Thaksin. The currency controls into Thailand are not as severe and they thought they could do another round of 1997.

It may temporarily affect regional equity markets, but in actual fact, its an excellent medicinal dosage to keep the baht from being excessively manipulated. Having said that, nothing much will happen with regional stocks ahead of the holidays, maybe some window dressing come 28/29 December but wait for end of first week of January to replenish positions.


sopskysalat said...

Dec. 19 (Bloomberg) -- Thailand will lift currency controls imposed on international investors in the stock market after the benchmark index plunged the most in 16 years today, the head of the country's stock exchange said.

The government agreed to remove a requirement that banks lock up 30 percent of new foreign-currency deposits for a year, Patareeya Benjapolchai, president of the Stock Exchange of Thailand, told reporters after meeting with Finance Ministry and Bank of Thailand officials.

Thailand's SET Index tumbled 15 percent to its lowest since Oct. 29, 2004, after the central bank said overseas investors must pay a 10 percent penalty unless they keep funds in the country for a year. The index sank 108.41 to 622.14.

International investors sold 25.1 billion baht ($699 million) more Thai stocks than they bought in today's trading, their largest net sales since at least Jan. 4, 1999, according to data compiled by Bloomberg.

The steps triggered declines in other emerging stock markets as the currency controls highlighted the risks of investing in developing economies. Morgan Stanley Capital International's Emerging Markets Index fell 12.14, or 1.4 percent, to 883.18 as of 8:25 p.m. in Bangkok.

Last Updated: December 19, 2006 08:30 EST

Are they kidding us?

sopskysalat said...

First, they made a good step to curb speculation. But now, they are giving in to speculation. Are they telling the whole world that the problem is there and they are helpless in tackling it?