The risk aversion prompted by mounting worries over China's plunging stock market and Greece's potential exit from the euro zone have sunk the Thai baht to its lowest level in six years and roiled local shares.
According to Kobsit Silpachai, head of capital market research at Kasikornbank (KBank), China's tailspin has had a greater impact on Thai financial and capital markets than the Greek debt default has, given that Thailand's economy has greater exposure to the world's second-biggest economy, particularly in exports and tourism, than to Greece.
- Knock-on effects: Chinese slump slams Thai funds
China is the No.2 destination for Thai shipments after the US, representing 11% of total exports during the five months through May. China is also Thailand's biggest tourism market: the number of Chinese tourists who visited Thailand in the first half more than doubled to 4 million, generating 191 billion baht in income.
The stock market rout adds another threat to China's cooling economy. Hundreds of companies halted trading after emergency measures announced last weekend failed to stop a collapse that has dragged down the benchmark Shanghai composite by more than 30% in the past three weeks.
The baht, which retreated for a third straight session Wednesday, slipped through the 34 level in the early morning and weakened to the day's trough of 34.06 - the steepest point since September 2009 - before climbing back to just shy of 34 in late trade.
The local currency has lost 4.3% in the past three months in Asia's second-worst performance, according to Bloomberg.
Kobsit: We need to monitor China
Mr Kobsit said concerns about China's bourse would continue to depress the baht this week and possibly push the baht down to 34.20-34.30 in the coming weeks.
"We need to monitor China's new measures aimed at averting equity market chaos, which is an unexpected factor," he said.
KBank recently revised its baht forecast to 34.50 to the US dollar at the end of 2015, citing domestic and international uncertainty. The revision was the bank's fourth this year.
Safe-haven currencies such as the US dollar and the Japanese yen have strengthened as investors flock to them amid growing market volatility.
Aside from China's stock woes and Greece's plan to unveil a new debt proposal, investors are on the lookout for clues from the US Federal Open Market Committee's minutes from its June 16-17 meeting, said a local dealer at Bangkok Bank.
The baht could weaken to 34.10 against the dollar this week if China's stock market fails to rebound, the dealer said.
Prinn Panitchpakdi, country head for Thailand at CLSA Securities, said the baht depreciation could be attributed to domestic and external factors, with investors locked in a risk-averse mode.
Investors have been selling risky assets in Thailand and throughout Asean as concerns mount, he said.
Speculation abounds over whether another policy rate cut by the Bank of Thailand's Monetary Policy Committee is in the offing, Mr Prinn said, adding that the recent naming of Veerathai Santiprabhob as the central bank's new governor would affect baht movements because Mr Veerathai's policy stance is seen as pro-growth - implying an inclination towards low interest rates.
In trading Wednesday, the SET index fell by 0.91% to 1,470.25 in moderate trade worth 37.62 billion baht. Foreign investors cashed out to the tune of 2.32 billion baht.
"It is difficult to see the SET index turning to an uptrend in the short term as long as Greece cannot reach a conclusion with its euro-zone counterparts on a debt deal," said Kavee Chukitkasem, assistant managing director at Kasikorn Securities. "However, the downside risk is quite limited after the recent tumble."
He said it was not completely unexpected to see the Chinese stock market slump 30% after doubling to 4,000 points in a few months.
