Experts see SET rebound

Index nosedives 3.3% on new collateral rule fears

Published: 23 Mar 2013 at 00.00
Newspaper section: News

Market experts predict the Stock Exchange of Thailand (SET) will rebound next week after it nosedived a whopping 3.3% yesterday, its biggest one-day trading loss in 18 months.

Panicked by a possible SET measure to increase the collateral requirement for cash accounts from 15% to 20%, retail investors sold off stocks heavily, sending the index plunging to 1,464.72, before it regained some ground to close the day at 1,478.97, down 50.55 points.

Market turnover was 101 billion baht, the highest since 1993 and 30 billion baht above the recent daily average, though retail investors as well as foreign investors ended the day with small net-buying positions.

Trading via cash accounts currently amounts to about 60% of the total turnover on the market. Stock investors trading this way need to have cash in their bank deposit accounts, and have to authorise their brokerages to withdraw money from the accounts to settle trades.

Currently, if a stock investor has, say, 150,000 baht in a bank account, which is collateral for cash-account trading, he or she is allowed to trade up to one million baht. However, the investor has to settle the daily trading balance within three working days.

The potential new measure would require that collateral be raised to 20%, or 200,000 baht to support trading volume of one million baht. The aim is to reduce volatility and to deter speculation.

Market officials have observed a sharp increase in trade in speculative stocks this year. One notable example is the developer Natural Park, which is currently trading around 20 satang a share and has traded as low as two satang. It topped the volume table on Friday with 13.23 billion shares changing hands.

Uncertainty over the financial crisis in Cyprus was another negative factor that hit the local exchange yesterday.

However, Parin Kitchatornpitak, a senior vice-president of KTB Securities, expected that Thai shares next week would rebound to between 1,520 and 1,525 points as he believed all the negative factors had already been absorbed.

He was optimistic that a last-minute bailout solution would be approved to ease the situation in Cyprus when its lawmakers vote on a new bailout deal.

Cypriot lawmakers began a debate last night on legislation to unlock the rescue funds needed to prevent a financial collapse.

The European Central Bank says it will withdraw funding from Cyprus lenders next week if the government and the eurozone area fail to agree a deal.

"But the Cyprus economy is very small. If [a bailout] fails to be agreed upon, the impact would be limited unlike with other eurozone members which are in crisis such as Italy or Spain," Mr Parin said.

He believed that the two-day weekend break would help investors calm down next week after they realised the impact from the regulator's possible new collateral measure would only be marginal.

Montri Sornpaisarn, CEO of MayBank Kim Eng Securities, said the market plunge yesterday was caused by fearful retail investors.

Charamporn Jotikastira, the SET president, yesterday maintained that the market slump had nothing to do with the proposed plan to increase the cash-account collateral, which will be discussed on Tuesday.

Kongkiat Opaswongkarn, CEO of Asia Plus Securities, suggested that investors pulling out their profits after a lengthy surge in the market may have triggered yesterday's index decline.

"Many small stocks' share prices rose hundreds of percent and have been trading with high price-to-earnings ratios for some time" Mr Kongkiat said.

"Many investors want to cash in their profits, which is one of the reasons we saw the sell-off.

Pattera Dilokrungthirapop, the Asco chairwoman, stressed that the SET and Asco had not taken any action yet, but conceded that the timing of Thursday's announcement by the SET was poor and some investors might have panicked at the news.

A strategist at Tisco Securities, Viwat Techapoonphol, said a potential credit default by Cyprus and a possible requirement for higher collateral values for cash accounts were likely the reasons for the market sell-off.

The SET may see a technical rebound next week toward 1,500, he said.

Friday's SET slump also brought losses for the week to 7.46%, the biggest weekly plunge since October of 2008. Around 1 trillion baht of market capitalisation has been lost since last Friday, reducing the figure to 12.58 trillion baht.

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DONHUAN
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Discussion 13 : 26 Mar 2013 at 14.4713
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Thailand’s current economic situation is relatively stable for now unless the government starts to spend extravagantly on populist programs that do not benefit the society in general. However, drastic events in the US, EU, Japan and China will impact the world all over and Thailand, being a relatively small economy is no exception. Any incremental movements related to the currency, interest rates or stock exchange, are basically reacting, in the short run, to the on-going in these larger economies. Thailand, together with her ASEAN partners, can cushion any adverse impacts by generating real growth within their respective economies.
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spiceman
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Discussion 12 : 25 Mar 2013 at 04.0212
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Khun Jaidee #11, in Economics, everything is relative. The Bath is appreciating because the Euro and the Dollar are being inflated, therefore, depreciated. This is just basic Macro Economics, nothing fancy whatsoever. As I said, as long as the Thai Govt doesn't repeat the same stupid mistake their European and American counterparts are doing, we should be fine. The most recent bank run on Cyprus a few days ago should give you some ideas of how serious the worsening debt crisis is causing the EU. As we all know, the Economies of Spain, Portugal, and Italy are dying slowly, and how long do you think Germany can keep giving money away?
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jaidee
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Discussion 11 : 24 Mar 2013 at 18.0111
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All due respect Spiceman, your bet on Asian stock markets and currency is a total farce. the entire world knows these markets are rigged and there's no reality whatsoever to be found in their markets let alone their governments.

when they begin to PEG EU, US and Japan currencies to the baht I'll be a believer. Until then I recommend you don't go long on anything Asian. Baht strength is sheer ignorance, nothing more.
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spiceman
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Discussion 10 : 24 Mar 2013 at 11.1010
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Jaidee #9, the Euro & the Dollars are being depreciated because they are being printed out of thin air nonstop indefinitely every single day! The value of any currency is a function of Demand for & Supply of that currency. So, with all else being equal, an increase in the supply of the Euro & the Dollar will cause both currencies to depreciate. It's as simple as that. Also China & Southeast Asian are looking better and better for foreign investors as safe harbors to shield their money against the imminent economic collapse of both the EU and the USA! So given that the Thai Govt doesn't create the same stupid mistake, we should be fine.
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jaidee
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Discussion 9 : 24 Mar 2013 at 09.359
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Obviously Spiceman and Kasper are not looking at a glass half empty. Thailands enormous debt is held by international monetary funds in the amount equal to its GDP. The recent four years of government agencies borrowing,(manufacturing money) for infrastructure and pet projects has all but bankrupted the BOT. One must be careful when comparing an economy built on government controlled media, economic manipulation and outright lies. A strong baht as previously pointed out is pure bunkum!
A strong baht is needed by the BOT and the Government to shore up their failed long term investing in the EURO verses the Yen or Dollar.BOT is a failure
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kasper
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Discussion 8 : 23 Mar 2013 at 18.438
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@jaidee, d5.

spiceman is right, the Thai economy is fine, at least for now. Debt is relatively low, inflation is acceptable, the strong baht is not a major problem except for some exporters, who will survive but with lower profits. But more importantly Thailand is still a developing country, so it does not yet have the enormous social responsibilites developed countries have, such as pensions, education, healthcare, unemployment benefits etc. Yes, these things exist in Thailand, but on a very small scale and at a very low cost compared to developed countries.
Further, no Thai banks are big enough to crash the economy like 2008.
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kasper
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Discussion 7 : 23 Mar 2013 at 18.327
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@barmine, d4

The average Joe does not have an account that allows geared investments.
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spiceman
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Discussion 6 : 23 Mar 2013 at 17.106
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Jaidee #5, did I say "compare to what the EU and the US are going through,...worsening debt crisis?" The Europeans and the Americans basically are resorting to printing money out of thin air in order to keep their Economies afloat. The measure will only work for a while until high inflation begins to creep in. Has Thailand been printing money out of thin air, not to mention relatively low debt ratio. And every time the Baht appreciates, inflation actually goes down, as imports, especially, fuel, becomes cheaper. So, given the Thai Govt is not taking on excessive debt or loosening its fiscal & monetary policies, we should be fine.
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jaidee
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Discussion 5 : 23 Mar 2013 at 15.435
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Dis. #3 So you actually think the countries economically sound do you? No excessive debt, bad loans, secure banking system? Better check the outflows against the inflows mate.

Every time the baht goes up in value, the rate of inflation increases by exponential numbers. Obviously you are not struggling to feed your family of four or trying to keep petrol in your motorsi? Inflation is serious and the number of foreclosures is gaining momentum just not being reported.

Hold on, its going to be a rough ride the conductor said.
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barmine
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Discussion 4 : 23 Mar 2013 at 15.334
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So if a person has 150,000 or now 200,000 they can gamble up to 1,000,000 baht.
This looks scary to me but Thais like to gamble. I wonder how many would risk doing
something this crazy.
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