Global selloff on worries about EU Published: 8/05/2010 at 12:00 AM
Newspaper section: Business
Thai stocks dove 2.13% yesterday as global markets tumbled over ongoing concern about the Greek debt crisis.
The Stock Exchange of Thailand index closed at 768.55 points, down 16.70, in active trade worth 31 billion baht. The index, which has fallen 28 points over the past two days, dropped to as low as 761.02 at the start of the afternoon session before regaining some ground late.
Energy stocks led the selloff, sinking 2.48% for the day, while banks slipped 2.68% and construction materials lost 1.87%. Foreign investors continued to dump shares, selling 5.18 billion baht more shares than they bought, while institutional investors were net sellers of 1.07 billion. Retail investors were net buyers of 6.6 billion baht in stocks yesterday.
Other Asian markets fared equally poorly, with Tokyo losing 3.1%, Hong Kong off 1.06% and Sydney falling 2%.
Market sentiment, already weak because of worries of a contagion effect across Europe from the Greek crisis, was further shaken by events overnight on Wall Street, when the blue-chip Dow Jones Industrial Average fell nearly 1,000 points in a matter of minutes following a computer error. The Dow ended down 3% or 348 points.
Analysts said the financial markets were being hit by a flight to quality in reaction to the European crisis, leading to selloffs in stocks in favour of US dollar bonds.
Domestic political risk remains an ongoing concern amid growing political resistance to Prime Minister Abhisit Vejjajiva's five-point reconciliation road map.
The Greek crisis, however, will continue to dominate short-term market trends. Yields for 10-year Greek government bonds jumped yesterday to a record high of 11.308%, showing the lack of confidence investors have in the government's credit despite the rescue package brokered last weekend.
The 16 euro zone nations and the International Monetary Fund have agreed to provide 110 billion in emergency loans to Greece to help stem a debt default.
But market concerns are that the funds will be insufficient and that a loss of confidence could spread to the bond markets of other debt-ridden economies, such as Spain, Portugal and Italy.
Kavee Chukitkasem, an assistant managing director at Kasikorn Securities, said politics was another factor weighing on the local market.
"Actually, politics shouldn't really be having that much influence. But the SET jumped 34 points on Tuesday [after Mr Abhisit announced his 'road map']. Now that some problems appear to remain, the market is correcting downward," he said.
Support at 760 points remains a key, with trading next week likely to range from 750 to 770. But short-term trends look bearish, with the SET possibly falling to 700 points over the next month due to the Greek crisis.
Mr Kavee said the Greek crisis was a difficult one to address, as devaluation and monetary policy measures were out of the country's control as a member of the euro zone.
"The impact from Greece will likely be a further slowdown in world GDP growth, which in turn will weigh on equity markets. But once we see values fall to a reasonable level - say 700 points [for the SET], buying will pick up," he said.
Usara Wilaipich, a senior economist for Standard Chartered Bank, said the direct impact of the Greek crisis was relatively limited. Thai exports may be affected by a weaker euro, although exports to Europe account for only 15% of the country's total.
Indirectly, the crisis will continue to drag on the equity and currency markets and global market sentiment.
"Foreign investors are selling off stock to lock-in profits from the previous rally and avoid losses from further depreciation of Asian currencies against the US dollar," Ms Usara said.
The baht yesterday was quoted at 32.32/35 to the dollar, compared with 32.34/36 on Thursday. Against the euro, the baht gained ground to 41.27/35 against 41.32/4 on Thursday.