Possible tourism setback rattles wobbly Thai markets

Possible tourism setback rattles wobbly Thai markets

Investor confidence already tested by weak currency and concern about government spending

A security guard stands outside Siam Paragon, where police arrested a teenage gunman who killed two people and wounded five others on Tuesday. (Photo: Reuters)
A security guard stands outside Siam Paragon, where police arrested a teenage gunman who killed two people and wounded five others on Tuesday. (Photo: Reuters)

The shooting tragedy at Siam Paragon adds to a double-whammy of rising interest rates and government spending worries that has hammered Thai assets and soured bets on the recovery of the country’s economy, say analysts.

Tourism stocks slid 1.6% just after the Stock Exchange of Thailand opened on Wednesday, before staging a gradual recovery, as investors weighed the possibility of a negative reaction to the incident from China, the country’s biggest source of visitors.

Prime Minister Srettha Thavasin on Wednesday vowed to step up preventive measures to ensure tourist safety. That has been a big concern of Chinese visitors even before Tuesday’s shooting, which took the life of a 34-year-old Chinese woman who was visiting Siam Paragon with her two small twin daughters. The other victim was a young woman from Myanmar who worked at the mall. 

The SET Index fell as low as 1,431.96 points, before it started moving back up later on Wednesday. Still, the benchmark index is at its lowest since January 2021, while a stronger dollar has sent the baht to an 11-month low beyond 37 to the US dollar.

Foreign selling pressure has been building in the market for weeks, with some 60 billion baht leaving Thai stock and bond markets since the start of September and coming to a head with a surprise interest-rate increase last week.

On the SET alone, foreigners have been net sellers so far this year of 162 billion baht.

Heavy fiscal spending promises by the new Pheu Thai government also have investors asking questions about how much more debt it can afford to take on.

Ten-year Thai government bond yields are now up 75 basis points in little more than three weeks, according to LSEG data, a move even larger than that in US Treasuries.

“There is constant selling in the Thai bond market with very thin liquidity. Bid/offer spreads are wide and it’s difficult to get anything done,” said Toreck Horchani, head of prime brokerage dealing at Maybank Securities in Singapore.

“The market was expecting no hike,” he said.

The Bank of Thailand unexpectedly raised rates last week and said it expected growth and inflation to pick up, leaving the door open to further hikes in future. It has expressed concern that government spending will further fuel inflation.

Stocks have slid heavily since and are down more than 8% from the end of August, larger than the 5% fall in the MSCI Emerging Markets Asia index over the same period. September equity outflows exceed those from peer markets in the region such as the Philippines, Vietnam or Indonesia.

The government has vowed to restore confidence in tourism in the wake of Tuesday’s shooting, though stocks such as Central Plaza Hotel and Airports of Thailand were sold, sending the latter to a seven-month low, early on Wednesday.

In ordinary circumstances lifting rates might have been expected to rally the baht, but as already higher US rates have climbed further — amid a rout in global bonds — the Thai currency has lost more than 2% on the dollar in a week.

“This … is primarily attributed to aggressive offshore buying (of dollars),” said Chintana Kittiviboolmas, Thailand head of global markets for UOB, with new concerns around the government’s financing strategy adding to the pressure.

Mr Srettha has promised to inject 560 billion baht into the economy next year through a digital wallet programme, but his Pheu Thai government is still working out details of exactly how it will be funded.

Lack of policy coordination

In addition to fuel and farming subsidies, the plans seem at odds with the central bank’s efforts to contain inflation and investors are nervous about additional supply in a falling bond market, at a time when global markets are jumpy and fragile.

“In this backdrop there needs to be much greater (not less) monetary and fiscal coordination,” said Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management. “The market senses this policy disconnect, and the sell-off in the baht seems to be the casualty.”

To be sure, the growth outlook and hope for tourism’s recovery remains supportive.

But even medium-term baht bulls, such as Siddharth Mathur, head of macro strategy and Asia-Pacific emerging markets’ research at BNP Paribas in Singapore, see risks ahead.

“The seasonal improvement in tourism is not due until November, despite high hopes for a surge of Chinese tourists during the Golden Week holiday,” Mathur said.

“Energy import costs are rising in the interim, and the government’s fiscal spending plans will likely trim the current-account improvement we expect,” he said. “That in turn leaves the Thai baht exposed to broad US dollar momentum.”

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