Foreign sell-off runs riot

Foreign sell-off runs riot

Thai stock exchange fell below 1,700

An investor watches a board showing stock information at a brokerage office in Beijing on Monday. (Reuters photo)
An investor watches a board showing stock information at a brokerage office in Beijing on Monday. (Reuters photo)

Despite upbeat final quarter projections buoyed by mutual fund investment flows, analysts say foreign investors are still put off by risks in emerging markets, including Thailand, as they want to avoid any adverse effects from the Sino-US trade row.

Foreign investors remain net sellers in emerging markets because they want to control risk exposure from the escalating trade row, which could cause a global economic slowdown, said Vasin Vanichvoranun, chairman of the Association of Investment Management Companies.

The year-to-date sell-off of equities in emerging markets was US$6.8 billion (224 billion baht) in both Thailand and Taiwan, followed by Indonesia ($3.8 billion) and South Korea ($3.3 billion), said Mr Vasin.

"Foreign investors still have not returned for long-term investment in emerging markets, but have speculated in short-term bonds," he said.

The US Treasury said it was concerned about China's currency depreciation and that it was monitoring developments related to the yuan, according to CNBC.

Early Tuesday (Monday US time), Wall Street fell for a third straight day, tracking global stocks, in the backdrop of growing unease over effects of the Sino-US trade war on global growth and with Treasury yields at multi-year highs.

Beijing announced a steep cut in the level of cash that banks must hold as reserves, aimed at lowering financing costs and spurring growth amid the trade spat. Still, China stocks slid and weighed on global markets as well.

"There are concerns about the Chinese economy and the impact of trade," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

"As we head into earnings season, investors will be looking at the rest of the world to gauge the real impact of tariffs."

On Wall Street, fears of slowing growth manifested in a drop in high-flying stocks that have led the market rally, with concerns about valuations in the pricier names coming to the fore, especially with the corporate earnings season on tap.

The biggest casualties were technology stocks, which tumbled 2.18%. Apple fell 1.4%, Microsoft slid 2.3% and Nvidia was down 3.3%.

The communication services sector dropped 1.23%, with heavyweight Netflix down 3.5%. Facebook dropped 1.2% and Alphabet fell 2.4%.

Tumbling confidence

The latest equity sell-off in emerging markets resurfaced Monday as most Southeast Asian bourses declined following a stumble in China's stock markets.

Confidence was muted as US vice-president Mike Pence accused China of meddling in next month's congressional elections along with a report that Chinese spies had compromised US hardware, according to Reuters.

The Shanghai SE Composite fell the most among emerging market bourses as the benchmark tumbled by 3.72%, while Hong Kong's Hang Seng index dipped 1.4%.

Foreigners dumped net 9.7 billion yuan ($1.4 billion) of A shares through exchange links with Hong Kong Monday, just short of a record hit eight months ago, as mainland markets reopened after a week-long break, according to Bloomberg.

The Stock Exchange of Thailand (SET) index also reeled from the impact of a sell-off in Chinese equities, falling by 1.4% to close at 1,696.22 points in turnover worth 59.6 billion baht.

Foreign investors and institutional investors sold Thai shares worth 2.4 billion and 3 billion baht, respectively.

Shares in the energy and cosmetic sectors fell the most, with BEAUTY declining by 8.2% followed by IVL (-5.7%), EA (-4.76%) and PTTEP (-3.7%).

Potential upside gain

While fears of a continuous sell-off are stoked by China's tumbling stock market, investment incentives remain in the Thai bourse still prevail thanks to a combination of domestic factors.

"Thailand's stock market is the most attractive market among emerging markets, supported by the upcoming general election and economic fundamentals, despite how the country's GDP growth is lower than other countries," said Mr Vasin.

Capital is expected to move into the SET index this quarter, attributed to net inflows from long-term equity funds (LTFs) and retirement mutual funds (RMFs) worth a combined 40 billion baht in December, he said.

Normally, annual investments in LTFs and RMFs are around 70-80 billion baht, said Mr Vasin.

The investor confidence index for the next three months rose by 12% to 120.60, moving into bullish territory for the first time in seven months, according to the Federation of Thai Capital Market Organisations.

A figure below 80 points is considered bearish, 80-120 is neutral and over 120 is bullish.

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