STOCK CRISIS

It's Black Tuesday

It's Black Tuesday. In a single trading day, the Thai stock market lost Bt800 billion in paper wealth as its key SET index plunged by a record 14.84 per cent - the worst since Black Monday in 1987.

Regional stock markets also fell in tandem, with Jakarta down 2.85 per cent; Kuala Lumpur, down 2 per cent and Singapore, down 2.23 per cent.

Meanwhile, the Thai baht depreciated two percentage points to about Bt36 per dollar. Until yesterday, the Thai unit had this year risen by a total of 16 percentage points against the dollar.

Deputy premier and finance minister Pridiyathorn Devakula said the Bank of Thailand had acted in the interests of the private sector, especially exporters who were suffering from the strong baht.

In other words, the government wanted to take care of the Thai economy over the interests of foreign speculators.

Yet, critics said the measures imposed by the central bank have probably been too harsh, resulting in the stock market's free fall.

Teerana Bhongmakapat, an economist at Chulalongkorn University, said the reserve requirement on Thailand's capital inflows should be cut to five per cent from the current 30 per cent so that negative impacts are lessened.

Doing so would effectively cut the capital inflow tax to 2.53.3 per cent instead of 10 per cent at present.

Currently, the central bank requires 30 per cent reserve on foreign capital brought into Thailand, meaning that if investors/speculators pull back their money within three or six months, they would lose onethird of the reserves or 10 per cent.

But if they get money back after a year, they will be subject to no tax.

In other words, the challenge is how the central bank could minimise the costs (of capital control) and the side effects of such a policy to curb the excessive rise of the baht which is key to the competitiveness of Thai exports.

Currently, the export sector accounts for 60 per cent of the country's GDP.

As for the stock market, the negative impacts were unimaginable as yesterday's crash was the biggest oneday fall in the bourse's 31year history.

The composite SET Index plunged to 721.85 at the opening bell and headed south further to fall by 10 per cent at 10.30 am and resulted in the firstever implementation of the firststep circuit breaker to halt trading for 30 minutes by the Stock Exchange of Thailand (SET) since it was created in 1997.

Panic selling remained after the stock market resumed trading and it pushed the market down to almost 20 per cent to the day's trough at 587.92 before rebounding slightly to close the day at 622.14, or 14.84 per cent drop.

Turnover was also marked the alltime high at Bt72.13 billion if excluding the Bt73billion big lots of Shin Corp deal in January 23, 2006 when the turnover amounted to Bt94.06 billion.

Business Reporters

The Nation

Asian stocks recover as Thailand backs down on currency controls

Hong Kong - Asian stocks recovered from sharp falls Wednesday after Thailand's military government backed down on imposing harsh currency controls which saw Bangkok shares lose a massive 15 per cent.

The flip-flop and a steady performance on Wall Street overnight had investors chasing bargains following Tuesday's sell-off amid chaos in Thailand and echoes of the 1997 Asian financial crisis.

"The market is up on a recovery from yesterday's (Tuesday's) shocker," said Gabriel Yap, a dealing director with Phillip Securities in Singapore. "It's not something that will have a systematic hold on the market."

Late Tuesday, Thai Finance Minister Pridiyathorn Devakula was forced into an embarrassing policy U-turn after an unprecedented 23 billion dollars was wiped off the value of Thai listed companies in one day.

The rout was triggered after the military-backed government imposed capital controls in an effort to check the increasing pressure a rising currency was putting on exports, a key driver for the economy.

The punitive measures in practice stopped foreign fund inflows dead into a market where they had been very important and Pridiyathorn, formerly a central bank governor, declared an exemption on stock investments.

In Bangkok -- where foreign investors account for about 40 per cent of the market -- the Stock Exchange of Thailand (SET) responded immediately and was up 10.61 per cent at noon, with benchmarks elsewhere following suit.

"With the change, foreign investors can continue to invest in the Thai stockmarket. Sentiment is really positive," said Sukit Udomsirikul, a senior market analyst at Siam City Securities.

However, investors remain less than impressed with the government which was installed through a bloodless coup in September that ousted prime minister Thaksin Shinawatra, a former telecoms tycoon known for his business savvy.

"It really damages the government's credibility. You cannot suddenly change important regulations overnight," said Sukhbir Khanijoh of Kasikorn Securities.

Krungthep Thurakit, a leading Thai business daily, demanded someone should take responsibility for the mess, adding: "It was the most expensive economic lesson for Thailand since the financial crisis in 1997."

Around the region, the reaction was one of relief. Among Thailand's closest neighbours, Singapore was up 2.20 per cent, Kuala Lumpur gained 0.90 per cent, Jakarta rose 1.85 per cent while Mumbai opened up 0.84 per cent.

In early afternoon trade, Hong Kong was 1.43 per cent higher while Seoul closed up 1.02 per cent, with dealers saying the impact from the Thai debacle on local equities had fizzled out.

The capital controls were reminiscent of the 1997-98 Asian financial crisis when excessive borrowings in US dollars coupled with high interest rates forced the Thai government to float the currency.

The Baht then promptly collapsed along with the economy and the contagion spread across the region. Currencies and stock markets failed as businesses went bankrupt and recessions followed, with governments frantic to shore-up their economies.

Central bankers and governments played down suggestions that their countries might follow Bangkok's latest lead and ruled out any repeat of the havoc that engulfed East Asia in the late 1990s.

Harry Su, head of research at BNP Paribas said from Jakarta the knee-jerk reaction to the controls on Tuesday was largely because of the spectre of the financial crisis in 1997 and 1998.

"Indonesia is close to Thailand and the local market has been one of the best performing markets in the year-to-date," he said. "The Thai government has basically scaled back part of its policy so that is positive for the markets."

Elsewhere, benchmarks tended to follow local factors resulting in Tokyo closing up 1.40 per cent and above the critical 17,000 points mark while Sydney and Wellington registered solid gains to close at record highs.

Agence France Presse

MR Pridiyathorn Devakula, finance minister, said the government had acted in the interests of the private sector, especially exporters who were suffering from the strong baht.

Bt820-billion blunder

Pridiyathorn quickly halts capital policy Tuesday night and admits record fall of Thai stock market was far beyond expectations

Deputy Premier and Finance Minister Pridiyathorn Devakula yesterday quickly reversed the government's capital-control policy by exempting the ultra-sensitive stock market from a controversial reserve requirement and tax.

In a nationally televised announcement, Pridiyathorn admitted foreign investors had been severely hit by the capital reserve and tax measures, resulting in the Thai stock market's free fall.

Yesterday, the Stock Exchange of Thailand recorded the single biggest one-day loss in its history with Bt820 billion in paper wealth lost as the key SET index plunged by 14.8 per cent.

Regional stock markets also fell in tandem, with Jakarta down 2.9 per cent; Kuala Lumpur down 2 per cent, and Singapore down 2.2 per cent.

Pridiyathorn said the 30 per cent capital reserve requirement would remain intact on funds brought into the country for investing in financial instruments, as well as for borrowings.

However, there would be no such requirement on foreign funds brought into the country for foreign direct investment and for investing in the stock market, starting today.

He said the stock market should recover in stages and admitted that the damage in terms of a massive loss of market capitalisation was far beyond any expectation.

The finance minister said he hoped the negative consequences on the stock market would not be long-lasting, but Piyasvasti Amranand, the energy minister and a former asset management executive, warned there could be long-term negative impacts.

Meanwhile, the Thai baht fell 2 per cent to about Bt36 to the dollar. Until yesterday, the currency had risen by 16 per cent this year against the dollar.

Earlier, Pridiyathorn said the Bank of Thailand had acted in the interests of the private sector, especially exporters suffering from the strong baht, by introducing the capital reserve and tax measures.

The government wanted to take care of the Thai economy over the interests of foreign speculators, but it seemed to have under-estimated the huge negative impacts on the stock market.

Critics said the measures imposed by the central bank were probably too harsh and resulted in the stock market's free-fall.

The central bank allowed foreigners yesterday to keep more baht in the non-resident baht account in order to provide room for them to keep their baht liquidity after the anti-speculation move made them shift capital out of the stock market.

Late in the afternoon, the BOT cancelled the ceiling on outstanding baht liquidity in non-resident baht accounts per person, set earlier at Bt300 million. The ceiling was set because the BOT wanted to cut foreigners' baht liquidity.

However, the central bank moved to cancel the ceiling to allow foreigners to "park" their baht after they got out of the stock market.

On Monday, the BOT announced that Thailand would require a sweeping 30 per cent reserve on foreign capital brought into the country. It meant that if investors or speculators pull back money within three or six months they would lose a 10 per cent withholding tax on the entire amount.

But if they took money back after a year, they would be subject to no tax. In effect, all foreign funds were negatively affected, including those for FDI and investment in the stock, property and other markets.

The negative impact on the stock market was huge, as yesterday's crash was the biggest one-day fall in the bourse's 31-year history.

The Nation

Interesting to see the strength of the SET these days. Record loss one day, then coming back to almost normal within a day. I don't think that you would have seen that a few years ago.