Thai Baht, Stocks Decline, Bond Risk Rises as Clash Worsens

Thai Baht, Stocks Decline, Bond Risk Rises as Clash Worsens
May 17, 2010, 5:10 AM EDT

By Yumi Teso and Anuchit Nguyen

May 17 (Bloomberg) -- Thailand’s baht fell to a seven-week low, stocks slumped and bond risk climbed after at least 36 people were killed in fighting between the military and anti- government protesters.

The baht declined 0.3 percent to 32.49 per dollar as of 3:48 p.m. in Bangkok and touched 32.50, the weakest level since March 26, according to data compiled by Bloomberg. The cost of credit-default swaps insuring government debt rose the most in more than a year, while the benchmark SET index dropped to a two-week low following the largest withdrawal by foreign funds from stocks in almost three years.

“The situation is getting worse than expected and it will definitely have a negative impact on the economy,” said Emmanuel Ng, a strategist at Oversea-Chinese Banking Corp. in Singapore. “The political situation is probably going to add to arguments for a weakness in stocks. We will look for the dollar to move higher against the baht.”

Foreign funds were net sellers of 14.7 billion baht ($453 million) of Thai equities last week, the most since the five days ended Nov. 23, 2007, as the nation’s worst political clash in two decades escalated. More than 255 were injured since the military moved in last week to seal off an area as large as New York’s Central Park occupied by demonstrators. Among those killed include Major-General Khattiya Sawisdipol, an active-duty soldier supporting protesters, who was shot in the head.

Hurting Earnings

“The political unrest has severely affected the economy and consumer confidence this quarter, hurting earnings of companies such as banks and property developers,” Sasikorn Charoensuwan, the head of research of Phillip Securities (Thailand) Pcl, said today.

Thai credit-default swaps jumped 23 basis points to 170, according to BNP Paribas SA, suggesting deteriorating perceptions of creditworthiness. The increase is the biggest since March 2, 2009, according to CMA DataVision in New York.

The SET dropped 2 percent to 753.26, the lowest since April 29. The stock exchange closed at 3:30 p.m. Bangkok time today, about an hour earlier.

The benchmark measure may fall to 720 this week as the death toll from the political clash rises, said Win Udomrachtavanich, chief investment officer at Asset Plus Fund Management Co. in Bangkok, which oversees about $700 million. That would be lowest level for the gauge since March 9, three days before the start of the anti-government protests in Bangkok.

More Selling

“Foreign investors will sell more Thai shares as the political unrest worsens,” said Win, whose fund beat 97 percent of 234 Thai equities funds tracked by Bloomberg in the past year. “They will stay out of the Thai market for some time because the confrontation will continue for a couple of days.”

Protesters failed to disperse after Prime Minister Abhisit Vejjajiva offered to cut short his term, prompting the military action last week. The government’s first attempt to disperse the protesters on April 10 killed 25 people.

Thailand’s investment may slow as prolonged political tension hurts sentiment, Kim Eng Tan, a credit analyst at Standard & Poor’s, said today. The rating company has a negative outlook on its BBB+ rating on Thailand, he said. S&P’s forecast for 3 percent to 4 percent economic growth this year takes into account a 2 percentage-point drop due to the turmoil, he said.

Fitch Ratings may review the country’s debt rating if the political crisis worsens, Associate Director Vincent Ho said.

Losses in the baht may be limited because the central bank controls speculative trading and limits transactions from corporations and investors, according to Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo.

Daily Cap

The Bank of Thailand sets a daily cap of 300 million baht for trading accounts held by non-residents, such as overseas corporations, funds and banks, for investments in securities and other financial instruments. A similar limit is also set for non-investment accounts.

“The authorities’ way to control speculative trading is working quite well under this kind of conditions,” Soma said. “Still, this kind of violence is definitely negative for the baht and stocks because that will further damage tourism, which is an important sector for their economy.”

The protesters, drawn mostly from poor rural areas and support former premier Thaksin Shinawatra, say they are ready to die in a fight for democracy. They have defied a state of emergency since April 7. Pro-Thaksin parties have won the past four elections. Abhisit took power in a December 2008 parliamentary vote after a court disbanded the ruling party for election fraud. His Democrat party hasn’t won a nationwide vote since 1992.

“Of course, you don’t want to buy the baht under this kind of serious crisis,” said Daisuke Uno, chief strategist in Tokyo at Sumitomo Mitsui Banking Corp., who expects the baht to trade between 32.30 and 32.50 over the next few days. “The baht market is dominated by domestic players who are facing a crisis situation and so we don’t know how much they will aggressively trade under this kind of situation.”

--With assistance from Katrina Nicholas in Singapore, Sophie Leung in Hong Kong and Daniel Ten Kate, Supunnabul Suwannakij and Suttinee Yuvejwattana in Bangkok and Katrina Nicholas in Singapore. Editors: Linus Chua, Sandy Hendry

To contact the reporter on this story: Yumi Teso in Bangkok et yteso1@bloomberg.net; Anuchit Nguyen in Bangkok at anguyen@bloomberg.net

To contact the editors responsible for this story: Sandy Hendry at shendry@bloomberg.net; Linus Chua at lchua@bloomberg.net