MONTREAL - The Stock Exchange of
Thailand (SET) remained open at the start of
trading on Wednesday, despite the state of
emergency declared by Prime Minister Samak
Sundaravej in the wake of widespread street
protests and confrontations accompanied by the
threat of strikes, particularly in the utilities
and transportation sectors.
Although Thai
equity markets have been down over 25% in the past
three-and-a-half months, they are at present
proving relatively resilient in the short term,
given the circumstances.
The army's
declaration that it will not become involved in
the ongoing strife should assuage the markets, but
uneasiness will
inevitably persist. The
baht fell to its lowest level in a year, and was
down 2.1% last month alone. Foreign capital flight
is a distinct danger.
The Bank of Thailand
has been compelled to intervene in currency
markets to support the baht, while currency
traders expect it to fall further. The bank's
governor, Tarisa Watanagase, has insisted to the
press that the weakness is due to external
factors, while admitting that inflation, which
registered a lower-than-expected 6.4% annual rate
in August, was still a concern. Global energy
prices, particularly oil, could still negatively
affect the country's anticipated 5% annual
economic growth. (The figure for 2007 was 4.8%.)
From the start of 2004 through mid-2007,
the benchmark SET Index, which is calculated from
the prices of all common stocks, inhabited a
trading range between 600 and 800. From January to
October 2007, it gained over 46% from 620 to 907
even after declining from 883 to 758 between late
July and late August 2007. After breaking back up
through 800, it oscillated between 750 and 900
until two months ago, when it broke downwards
through the 750 support level, established in late
2007, that had buoyed it up in late January 2008.
The index was down over 2.3% on the
declaration of state of emergency, and over 3.5%
for the first two days of the present week.
Oscillating on Wednesday in the 650s, it is
currently supported by a wide technical band
stretching from 676 all the way down to 576,
formed by to-and-fro movements between 2004 and
2007. The 620-640 range represents an especially
significant support.
The SET is also
supported at its current level by a mild long-term
uptrend initiated in May 2004 and confirmed
January 2007. This uptrend passes today through
the 646 level. As a result, near-term movements in
the mid-600s will have longer-term consequences.
Should the 620-640 range be broken to the
downside, then the anchors of that long-term
uptrend at 617 and 583 represent the next major
supports, while major resistances dating from the
same period begin at 730 and stretch up to 760.
These trends are largely confirmed by the
SET50 index, which is calculated from the 50
largest companies by market capitalization. The
SET50 tracked the SET fairly closely at the
beginning of 2004, when it diverged. During 2004,
it began to outperform the SET progressively by a
factor oscillating between 20% and 35%, the
variation due to its exaggeration of the amplitude
of the latter's oscillations on both upswings and
downswings.
Due to this dynamic, the SET50
is in a slightly better technical situation than
the SET: its resistances to the upside are higher
and its supports to the downside are lower in
percentage terms. From early 2004 through
mid-2007, it was up 55% (or about 20% better than
the SET's 46% gain). Overall, the SET50 has rather
closely tracked the SET while maintaining its
outperformance ratio. Nevertheless, both indices
have only a few percentage points to go on the
downside before they hit the level of their 2007
low.
The political crisis in Thailand
shows no sign of diminishing, and some foreign
offices have issued travel warnings for the
country. Whatever happens in the near-term to the
political situation, in the longer term Thai
equities have been weakened. At least two
scheduled initial public offerings have been
delayed, out of fear of decreased demand for
shares.
Political risk indices have for
some time reflected the uncertain business
environment, and present events will have
long-term negative effects on the economy and
perceived business environment.
Already
foreign direct investment has fallen from US$4.2
billion for the first six months of 2007 to less
than $3 billion for the corresponding half-year in
2008. Foreign exchange earnings have also declined
from tourism, a sector with major employment. The
forced closure last week of several airports due
to the unrest does not help, while the national
carrier Thai Airways International says its
bookings have declined 10% due to unrest.
Unfortunately, the new emergency decree in Bangkok
is more likely to be the end of the beginning of
the turmoil rather than the beginning of the end.
In conclusion, August was not a good month
for emerging-market investors. Merrill Lynch's
monthly survey of fund managers had identified
Thailand as their second-favorite emerging market
for the month. Their favorite, Russia, has fared
not much better since its invasion and occupation
of a neighboring sovereign country (see Georgian
invasion worsens Russian downturn, Asia Times
Online, August 21, 2008, <>).
R M Cutleris a Canadian
international affairs specialist.
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