The Stock Exchange of Thailand (SET) index recorded a third straight day of correction as fears of a global economic recession were fanned by the inverted yield curve for US treasury bills.
Thailand's benchmark index closed at 1,604.03 points, down 15.42 or 0.95%, in turnover worth 100.94 billion baht. The index fell below the 1,600-point mark at midday before recovering to end the day at a moderate loss.
The bourse opened this week in the red as confidence was rattled by tensions over the Sino-US trade row, Hong Kong's protracted political unrest and a sharp decline in the Argentine peso. The SET index was down 1.8% on Tuesday and 0.05% on Wednesday.
Thursday's plunge in the global stock markets was attributed to investor concern over the inverted yield curve of US treasury bills, whereby the 10-year yield was lower than the yields of short-term debt securities, said Narongsak Plodmechai, chief executive of SCB Asset Management (SCBAM).
This yield curve signifies investors' prediction of lower interest rates in the future because longer-term bonds are demanded, sending yields down. An inverted yield curve is also used to forecast an economic downturn. The US treasury yield inverted in late 2005, in 2006 and in 2007 before the US subprime mortgage crisis erupted.
A substantial decline in the three main US stock markets Wednesday and weak economic data from China and Germany fuelled pessimism, resulting in higher gold prices as investors rushed to seek refuge in the safe-haven asset.
Foreign investors were net sellers of 3.96 billion baht worth of shares listed on the SET index. Brokerage firms offloaded a net 1.6 billion baht worth of shares.
The US economy is unlikely to enter a recession at the moment, Mr Narongsak said, but a wider gap of at least 50 basis points between yields of short-term and long-term US treasury bills for 2-3 months could mark the beginning of a recession.
"An inverted yield curve is a flash occurrence," he said. "We will have to closely observe developed economies' economic data."
Despite growing negative sentiment in equity investment, interest remains for long-term profits, but investors should be selective in terms of investing in equities that offer high dividends and examining companies' balance sheets, especially liabilities and revenue, Mr Narongsak said.
For SCBAM, the company has reduced investment in equity funds to 10%, opting to hold cash instead. The firm is still looking to invest in high-dividend and sustainable-income stocks.
Thailand's stock market conditions remain pressured by growing uncertainty. Further capital outflows are possible in light of the inverted yield curve for US treasury bills, said Vitai Ratanakorn, secretary-general of the Government Pension Fund.
The GPF allocates an investment proportion of 7% to Thai stocks, 7% to equities in developed economies, 2.5% to emerging-market equities and the rest to medium-term debt securities.
The fund has reduced holdings of short-term debt securities from 28% to 9% amid the lower interest rate outlook, Mr Vitai said.
Short-term economic stimulus measures, poised to be unveiled by the government soon, are expected to shore up the country's economic growth going forward, he said.
