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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Writer: Nuntawun Polkuamdee and Oranan Paweewun