SET dips as US troubles deepen Historic downgrade rattles Asian markets

Thai stocks closed 1.39% lower yesterday in volatile trade as most Asian markets tumbled in the wake of last week's historic ratings downgrade of the United States.

The Stock Exchange of Thailand index dropped 20 points at the opening, and slid by as much as 30 points to a low of 1,061.69 at the end of the morning session before bargain-hunting helped curb losses.

The SET index closed at 1,078.19, down 15.19, in trade worth 41 billion baht. Losers outpaced gainers 134 to 373, with 97 shares unchanged. Energy stocks led the sell-off, closing down 1.26%, banks dropped 0.91% and information and communications technology shares dropped 1.67%.

The SET50 index of large-cap stocks dropped 11.04 points or 1.45% to 750.11. Foreign investors, who were net sellers of 6 billion baht worth of stocks during Friday's 2.73% sell-off, continued to cut positions yesterday with a net sale position of 5.3 billion for the day.

Around the region, Tokyo fell 2.18%, Seoul dropped 3.82% and Shanghai dropped 3.79% to its lowest level since mid-July last year.

Gold jumped to a record high of US$1,706/07 an ounce in Hong Kong, up $50 from Friday, while local gold prices jumped 600 baht to 24,050/24,150 baht per baht-weight (15.16 grammes) as investors sought a safe haven from the economic uncertainty and concerns over the medium-term prospects of the US dollar. Volatility was high, with the Thai Gold Traders' Association adjusting prices 10 times throughout the day.

The global market rout began last week on jitters over political brinksmanship in the US Congress over efforts to raise the debt limit, followed by fresh economic data showing that the economic recovery in the industrialised nations was weaker than expected. Borrowing costs in Spain and Italy rocketed on concerns over their debt positions, capped by Friday's downgrade of America's AAA credit rating by Standard & Poor's.

Financial policymakers yesterday worked frantically to try to stem the market panic, with the European Central Bank committing to new purchases of euro-zone government bonds after Italy and Spain over the weekend both committed to new economic reforms.

Officials from G7 nations - Britain, Canada, France, Germany, Italy, Japan and the United States - pledged to "take all necessary measures to support financial stability and growth".

But analysts expect further losses and volatility in global markets as concerns mount that the US economy could be headed toward a new recession.

The current crisis is particularly worrisome as the main issue in the US and Europe is high public debt, hampering any move to use fiscal stimulus to spur growth. Central banks have also injected unprecedented amounts of money into the markets to push interest rates downward with mixed results.

SET president Charamporn Jotikasthira cautioned investors that the impact of a global economic slowdown on Thai listed companies would differ on a case-by-case basis.

"Thai stocks certainly have been indirectly affected by the S&P downgrade. Any direct impact will likely come later," he said. "You can see that despite the negative global economic news [in recent months], Thai stocks have been trending upwards."

While the SET index has fallen over 6% since the beginning of the month, the market is still up 1.95% over the past three months and 5.87% since January.

Kavee Chukitkasem, head of research at Kasikorn Securities, said the crisis could spur a new wave of capital inflows to Thailand and the rest of Asia as investors seek higher returns from the region's better-performing economies.

But short-term volatility is expected to stay high, he warned, as investors fear the risk of a new global downturn and "domino effect" undermining the world financial markets.

In the currency markets, the baht was trading late yesterday in Bangkok at 29.84/85 to the US dollar compared with Friday's rate of 29.85/89. The baht opened at 29.7 before easing late in the day.

Dominic Bunning, associate foreign-exchange strategist with HSBC, said regional currencies could fall slightly in the short term due to risk aversion.

"The dollar could gain in the short-term amid a number of concerns. Investors are seeking liquid assets in times of the uncertainty. And the dollar is it," he said.

But Asian currencies should strengthen as funds shift to the region over the medium term.

"Investors will see in the medium-term that the [US credit] downgrade emphasised the fundamental problems in its economy. But Asian economies will have better growth prospects. They have a healthier fiscal position," Mr Bunning said.

Banthoon Lamsam, the chief executive of Kasikornbank, said the US economic crisis would have little direct impact on the Thai economy for the rest of the year.

While a weaker dollar would put pressure on the baht and local exporters, a stronger local currency would help ease inflationary pressures by cutting the cost of imports.

"Money markets and stock markets have panicked. But volatility should ease within the next month as events become more clear," he said.

In the local bond market, yields mostly were unchanged, with the three-year government yield falling 0.51 basis points to 3.57% while the five-year yield rose 0.48 basis points to 3.61%.