(THIS ARTICLE IS COURTESY OF BLOOMBERG NEWS)
Some strategists saw uncertainty fueling this week’s slump
Bonds, stocks had been heading for worst week since 2013
Thailand’s baht held gains and an exchange-traded fund tracking the nation’s shares rose after the Royal Household Bureau said King Bhumibol Adulyadej, the world’s longest reigning monarch, had died.
The baht rose 0.7 percent to 35.42 per dollar as of 10:27 a.m. in New York. The local stock market had rebounded with the currency, closing higher before the king’s death was announced. Earlier in the week, Thailand’s assets had tumbled after the royal palace said Sunday that King Bhumibol Adulyadej’s health was “unstable.”
“People are already pretty much factoring a lot of uncertainty right now,” said James Woods, a strategist at Rivkin Securities in Sydney, speaking before the announcement. “You may see another push lower, but really, after that it’s just going to be about how quickly the royal family comes out to stabilize the market with comments and what their succession plan is. Once that is in place and investors have certainty, then it’s back to business as usual.”
The iShares MSCI Thailand Capped ETF climbed 1.8 percent to $67.95 in New York, trimming its loss this week to 7.8 percent.
“The uncertainties and political risks have been more or less priced in,” Margaret Yang, an analyst at CMC Markets in Singapore, said by phone after the news. “We may still see some panic selling but I don’t expect this to last for very long. Eventually smart money will flow in to support the market.”
Thailand’s SET Index has fallen 6.1 percent this week, with 30-day volatility on the gauge climbing on Wednesday to the highest level since January. The baht reached the lowest since January and at one stage was heading for its worst week in a decade.
The SET rose 15 percent in the first nine months of the year, the most among Southeast Asia’s major gauges after the Jakarta Composite Index. Stocks entered a bull market in July and reached the highest level in 15 months in August as economic growth accelerated and emerging-market assets rallied.
Equities had also been aided as stimulus measures to help shield the country from China’s economic slowdown made the nation’s shares a haven for overseas funds. Foreign investors have poured $3.8 billion into Thai equities this year, the biggest inflow in Southeast Asia, according to data compiled by Bloomberg.
“Thailand’s economic fundamentals remain unaffected, which should help it to weather this storm,” Jingyi Pan, a Singapore-based strategist at IG Asia Pte, said by e-mail before the announcement. “The military government which has overseen the economy during a period of increasing GDP growth, could help to guide the country through the period.”
Global funds pulled more than $950 million from Thai bonds in four straight days of selling, heading for the largest weekly outflows since May 2013. The nation’s 10-year government yield rose 11 basis points this week to 2.32 percent, the highest since January.
The nation’s bond market had been struggling even before the king’s health spurred further declines, as higher oil prices threatened to spur inflation and prompting traders to price in chances for a Bank of Thailand interest-rate increase. Thailand’s sovereign notes have slumped 2.1 percent in the past six months, compared with gains of more than 6 percent in India and Indonesia and a 2.9 percent advance in Malaysia.
Southeast Asia’s second-biggest economy may grow as much as 3.5 percent in 2016 from 3.2 percent last year on the government’s accelerating spending, according to the National Economic and Social Development Board. Prime Minister Prayuth Chan-Ocha, who took power in a May 2014 military coup, has issued a series of economic stimulus measures valued at more than 645 billion baht since September 2015 to help shore up local demand.Soo Hai Lim, investment director at Baring Asset Management (Asia) Ltd. in Hong Kong, says there’s a potential buying opportunity.
“A lot of people are nervous about the situation,” he said. “It is something that investors cannot dismiss outright but with the military in charge, the situation in Thailand should be manageable. Quite a number of companies are still delivering quite good growth despite the challenging macro economic environment. This incident is unfortunate but it’s something we’re aware of. The king has been sick for a while.”