The Thai stock market fell after hitting a 19-year high Friday, while the baht weakened on renewed euro-zone anxiety following a proposed Cyprus tax on deposits.
The Stock Exchange of Thailand warned retail investors in particular over an abrupt reversal of capital inflows to Asia including Thailand if the central banks of advanced economies signal they are winding down their monetary easing, said Pakorn Peetathawatchai, SET executive vice-president. A levy on bank savings required by the EU in return for a bailout deal for Cyprus has rattled global stock markets as investors were worried that such a tax could trigger bank runs across Europe and further destabilise the financial system.
The stock exchange was concerned that new investors may be adversely hurt if the market dipped, as the bull run was largely attributed to gains in small to mid-market cap stocks, which are highly volatile.
The number of retail investors has risen to 270,000 from 190,000 early last year, raising the trading ratio to 63% from 53%.
The SET ended down 0.4% yesterday at 1,591.65, recouping from the day's trough of 1,587.45, with heavy trading of 65.28 billion baht. On Friday it hit an intra-day high of 1,599.89 before retreating to close at 1,598.13.
The SET index has risen 14.35% so far this year.
The baht dropped to 29.53/57 against the dollar, marginally easing from Friday's 28-month high of 29.52, tracking the euro's weakness against the greenback, said a dealer, adding that concerns over the euro zone could continue to pressure the baht in the short run.
Therdsak Thaveeteeratham, Asia Plus Securities senior vice-president, said speculation has helped cushion some of the weakness.
"Our stock market is outperforming our regional peers. If there's nothing to stall capital inflows, the upward trend could continue," he said.
However, he warned risk is rising with the SET's rapid gains this year.
Mr Therdsak tipped resistance at 1,600 points with support at 1,585 this week.
Adisak Kammool, a strategist for KGI Securities (Thailand), said investors may lock in profits to mitigate risks following the recent sharp rise.
"If the SET can close firmly above the four-day moving average at 1,588 tomorrow, it will drift higher towards the resistance level of 1,600. But if it fails past 1,588, it will head south and test support at 1,576," he said.
The SET's market capitalisation at the end of February rose 4.74% from the previous month and 11.04% from the end of 2012 to 13.14 billion baht, thanksto the bullish stock market.
Market capitalisation of the Market for Alternative (MAI) amounted to 183.18 billion baht, up 5.25% from a month ago and 37.71% from a year earlier.
The forward price-to-earnings (P/E) ratio for the SET was at 14.18 times, up from 13.59 times a month ago, while the MAI's increased to 18.72 times from 18.07 at the end of January.