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Published on August 11, 2007

Shares tumbled below the psychological 800-point level at one point yesterday, battered by fears that the US sub-prime loan disease would infect local banks and by mass investor bailouts from stock markets across the region.

JP Morgan (Thailand) downgraded its forecast for the SET Index this year, from 870 points to 810, on concerns over the impact here of the sub-prime lending fiasco in the United States, which has dragged down markets around the world.

President Vorapak Thanyawong told a seminar that the revision reflected the volatility in foreign markets.

"Personally, this should be a short-term problem, to last about one month, as sub-prime credit accounts for 15 per cent of outstanding credits. Foreigners still hold positive views on the Thai market due to the 4-per-cent earnings growth and low price-to-earnings ratio," he said.

The SET Index nose-dived at the opening bell and kept plunging to an intra-day low of 789.93 late in the morning session. The market then recovered somewhat to close at 804.84, off one per cent on the day.

Turnover was thin at Bt19.57 billion.

Foreign investors heavily sold out. Their net sales of Bt4.36 billion in stocks brought their net sales so far this year to Bt23.78 billion.

Blue chips were at the centre of the sell-off, led by bank and energy stocks.

Bangkok Bank was down 1.68 per cent at Bt117, having fallen as low as Bt113 at one point. Siam Commercial Bank slumped almost 2 per cent to Bt75, Kasikornbank dropped 0.64 per cent to Bt78, PTT gave up 1.36 per cent to Bt290, Banpu slid 2.78 per cent to Bt280 and Siam Cement retreated 1.57 per cent to Bt250.

Around the region, Tokyo's Nikkei Average ended down 2.4 per cent, its lowest close since March 16, while Australia suffered its biggest daily fall since the terrorist attacks on the US in September 2001, receding to 3.7 per cent.

South Korea's KOSPI finished 4.2 per cent lower, while other major markets in the region such as Hong Kong and Singapore surrendered 2-3 per cent.

Overnight, the Dow Jones Industrial Average declined 2.83 per cent and the Nasdaq slid 2.16 per cent.

Stock Exchange of Thailand president Patareeya Benjapholchai rushed to allay market jitters by saying that the steep fall in the local bourse was a short-term phenomenon.

Investors were spooked by the US sub-prime mortgage loan problem and they took cues from the regional stock market rout, she said.

The Thai stock market remains attractive, given its low price/earnings ratio and good prices, she said.

"Although the Thai bourse moved like a roller coaster and plunged sharply, investors don't need to panic and they should study the information and monitor the news before making any decision. I believe that they should feel at ease if they get a clear picture," she added.

The foreign investor sell-off is not particular to Thailand. They had still bought local shares with a net worth of Bt110 billion, Patareeya said, adding that capital outflows would not be seen.

Maris Tarab, president of the Association of Investment Management Companies,

 

 

confirmed that the 48 foreign investment funds here had no exposure to US sub-prime mortgages, as the Securities and Exchange Commission does not permit such investment. The funds have a combined net asset value of Bt49.79 billion.

An analyst at Merchant Partners Securities said the collapse of Thai shares could be ascribed to the worldwide stock market meltdown resulting from anxiety that fall-out from tightening US credit markets might spread and hurt the economies of other countries.

The growing nervousness was fuelled by BNP Paribas's suspension of redemptions from its three funds and the divestment by many sub-prime lenders of their assets to solve a cash crunch.

Investors are concerned about the health of local commercial banks after the Bank of Thailand said four of them - including Krung Thai Bank, BankThai and Bank of Ayudhya - had invested in collateralised debt obligations, which accounted for 0.6 per cent of the entire Thai banking system's assets, while one per cent were in US sub-prime debts.

"That's why investors unloaded Thai bank stocks to reduce risk," the analyst said.

Siriporn Chanjindamanee

The Nation