The July 1997 Stock Market Crash

[Knightsbridge]

hi

Were there any of you in the set when it plunged 75% in July 1997? What stocks collapsed terribly? Who of you stayed on in the market? How much have you recovered? What's been your philiosphy on the set since then? Do you think a huge plunge could happen again?

My Thai wife remembers those days - many of her friends, mostly with postgrad degees in economics and finance, had invested in large amounts in what they thought were stable stocks. They say they lost everything and they all agreed it would have been better to have done regular profit-taking rather than be in for 5 years or more. And today better to invest large sums into 3 month bank specials of 3.25%.

Interesting info on this Asian crisis in http://en.wikipedia.org/wiki/Asian_financial_crisis

Does this mean I'll stay out of the SET. No, I'm staying but investing as wisely as I can, whereas my wife says NO WAY! oops a little bit of marital conflict.... well as long as the stock invested money isn't hers ....

Happy reading

[wasabi]

I am not an expert but I think times are much different now. I think now is a great time to invest in Thai stocks and another crisis is very unlikely in the foreseeable future.

[tingtong]

the one thing sure : it takes the SET a whole lots of time to recover...it is at around 1/2 of the all time high.

[Knightsbridge]

I am not an expert but I think times are much different now. I think now is a great time to invest in Thai stocks and another crisis is very unlikely in the foreseeable future.

So why do you think another crisis is unlikely?

One thought I have is that our business managerial Thaksin doesn't want a crisis (oh right, he won't be involved in politics, right?) and he's share some expertise on that with the present govt (behind closed doors).

[Knightsbridge]

the one thing sure : it takes the SET a whole lots of time to recover...it is at around 1/2 of the all time high.

and just like gold or other forgotten commodity it could just rebound out of the blue ....

[wasabi]

the one thing sure : it takes the SET a whole lots of time to recover...it is at around 1/2 of the all time high.

Nasdaq is more than half off it's all time high. And the Nikkei? Wow. I think 2010 will be another bull year though.

[Irene]

Just to share my thought.

Floating of the baht was on July 2, 1997 and index ended at 568 and came down to the lowest at 297 on Sept. 3, 1998 and in Jan 2004 stood at 780. Today, it is at 848. The last time it ever stood at that height was a decade ago just prior to July 2. (The highest it ever reached was 1753 which was on Jan 4, 1994.). What does this mean? It means that this market can make you rich and poor quickly if your timing is so terrible, i.e. buying when high and selling when low. The plung was not immediate until Sept. 1997. The worse affected was finance and banking and you could pick on bargains like PTT. We lost a lot in 1998 and recovered and made huge gain in 2003 when Thaksin came in 5 times the amount of the 1998 losses.

What were the lessons we learnt? First, we no longer trust the Thai medias and brokers' comments. You will notice that Bangkok Post and Nation no longers publish daily report on stock movements from any brokers. The wild comments as appeared in Thai press were terribly naive and are still so. The best ones now are DBS and Phatra. Second, dont take Thai economists' comments seriously but read a lot on the internet from world leading economists and trust a few Thai economists like Dr. Olarn, Dr. Veerapong and Dr. Ammar. Third, stay away from small and medium cap that can easily be manipulated but stick to blue chips especially PTT groups. Whatever the bad falls, you still hold on to tangible assets of those blue chip companies unlike banking and services industry.

What do I think now? Because of the slide of US economy, interest disparity of US and Thailand and lifting of 30% reserve, baht will have to strengthen further. With that trend, foreigners should come in in a big way next week. Since SET is now guided by the foreign sector, I feel that this could be a short term opportunity. Any change of scenery would prompt me to change my strategy quickly. I have given up long term strategy a few months ago because of the unprecedented dynamism of the Western economy in which up to today one still does not know the extent of the losses from this financial crunch ignited by subprime debts.

[Serene]

Irene,

Agree with you regarding a trading approach to the SET.However since 2002 I have been a bit of a yield junkie and therefore buy for yield.Hold MCS CM NNCL TPC TAF RPC MBK SPALI MK DRACO BAT-3k etc.etc.

A stock with a yield of 6% plus ,with good earnings growth is my approach.Never been good at market timing but have good steady money over the years(despite politcal economic turmoil ).Hope we're due another 2003.

Best of luck.

[GuestHouse]

I recall the crash very well, not as an investor but as someone living and working in an industry that was not effected by the crash (actually we did very well out of the reduced costs).

What I remember well is in the months before the crash my wife commenting on the amount of credit going around, empty building developments and restaurants full of Thais drinking imported whiskey and wines. Bangkok was jumping, a wild party town with jobs on offer to anyone with qualifications that might fit the bill, lots of money to be made and the last days of a society that was really open to western foreigners.

I remember the crash itself, buying a new car for half the price it was a few weeks earlier, staying in 4* hotels for less money than I could get a half decent B&B back home and months later as the crash bit, buying land and a house at a give away price.

I remember Bangkok's streets being absolutely empty, the shops, restaurants and hotels being empty too.

I remember a friend who worked in the foreign exchange department of a major bank being arrested along with all her colleagues for 'Trading Currencies'

I remember a few months later how she told my wife that after loosing her job she had difficulty finding a new post and on one occasion had an offer - subject to it being 'clinched' in a hotel that evening.

I remember sitting in my favourite bar in Pattaya with a bunch of guys and seeing an ordinary 30 something woman come in and ask if they needed staff. The mamma-san told her no, then after a short chat ordered her some food and gave her some cash telling her to go home to her family.

I remember too things changed. Many hotels started charging in Dollars, and the first moanings about how foreigners had ruined Thailand - Graffiti appeared condemning George Sorros and I heard for the first time Thais commenting about foreigners taking Thai jobs.

I remember too that it was after the crash that more and more foreigners started turning up - The few private expats living in Thailand became the many - a weak Bht and lots of repossessed property to be had providing, for a limited period, a cheap place to retire too.

The crash, I remember and would remind others, was about a great deal more than just the price of Thai stocks.

[wintermute]

The SET is still a fairly terrible market to invest in even with the "attractive" valuations. It's full of insider trading, poor accounting practices on company fundamentals that would make your hair stand up, commodities manipulation, and all sorts of shady stuff. Leave it to the hi-so thais and the foolish Thai middle class to play with this hot potato.

[j_cheung]

Remember July 2007? How can one forget is a more appropriate response!

It was the beginning of the great avalanche of economic woes that bespotted Southeast & North Asia for the next half decade (if you didn't count the adrenalin blip in the Telecom & IT sector from '98 to '00). During the immediate year thereafter, central banks kept hiking interest rates over an unbelievable 20+% while the regional currencies continue to nose dive further. However, like Irene mentioned, it was a fantastic time to be an equity value investor, real estate bargain hunter and retirement planner in the aftermath.

Guesthouse, I couldn't agree with you more. Just a year after the meltdown, I made a brief stopover around Gaysorn & Zen around Easter and the place was deserted for lunch. A full 3 course lunch tab plus drinks for 2 cost a mere 400+ THB which at the time flucated in the high 40s/USD. Unfortunately, the local staff who kept their jobs remained somewhat in a chronic state of shock & disbelief at the time .

[Irene]

Irene,

Agree with you regarding a trading approach to the SET.However since 2002 I have been a bit of a yield junkie and therefore buy for yield.Hold MCS CM NNCL TPC TAF RPC MBK SPALI MK DRACO BAT-3k etc.etc.

A stock with a yield of 6% plus ,with good earnings growth is my approach.Never been good at market timing but have good steady money over the years(despite politcal economic turmoil ).Hope we're due another 2003.

Best of luck.

Serene,

I was like you before and burnt myself with quite a few high yield stocks. Their liquidity were unnatural and therefore subject to manipulation by a few. At first, I was excited of the high yield and thought why didn't anyone take notice and believed myself to know of the secret. The stocks you mentioned I had all involved before and now close my eyes to these stocks whether they are good or bad and concentrate on those that matter. I understand the stocks in SET50 far better than before after I ignored those small caps. When there is a boost like 2003, blue chips tend to fare better because of their natural liquidity.

[Naam]

Remember July 2007? How can one forget is a more appropriate response!

true! i made more money end of october 1997 in two weeks than i made during the whole decade before. but i won't tell you that i lost more a year later when the russian crisis erupted. and in case you know how much i lost in 1998... please don't tell anybody!

[Irene]

GuestHouse,

Thank you, that was well described. The memory came back. Everybody in the finance sector started from the Minister of Finance downwards were all punched drunk of the shock after three months in the sense of denial. They were like aged boxers not knowing what had hit them.

One correction was surprising enough I was unable to find cheap property for sale at that time because all the creditors and bankers simply did not know how to liquidate their debts and sell their collaterised securities.

[BigSnake]

Heck Yeah, I remember, hope for another one soon to cool this old hot strong Baht down.

[Naam]

I was like you before and burnt myself with quite a few high yield stocks. Their liquidity were unnatural and therefore subject to manipulation by a few. At first, I was excited of the high yield and thought why didn't anyone take notice and believed myself to know of the secret. The stocks you mentioned I had all involved before and now close my eyes to these stocks whether they are good or bad and concentrate on those that matter. I understand the stocks in SET50 far better than before after I ignored those small caps. When there is a boost like 2003, blue chips tend to fare better because of their natural liquidity.

most probably i am too dumb to understand why people gamble with stocks instead of doing some serious investing with calculable proceeds reminds me of my wife who holds stocks and is looking forward to march 11th when we fly to Macau for a two week holiday. she is a compulsive gambler and i am worried that she will lose again at least one hundred dollars (perhaps even TWO HUNDRED!) as she does whenever we spend a few days in Vegas

[Irene]

wintermute,

I think that cynical views preclude you to make money from this market. SET is definitely not comparable to Hong Kong, Singapore or even Malaysia. But certainly, there are some goodies in the right good corporate governance one can pick from. Don't forget that Thai stocks were under low valuation since the coup, so it is not difficult to rise up to reap on the benefits of a democratic government. Vietnam is now otherwise because of the previous high position and now this year it has started to fall like a leaf.

Believe me, I have been making money above board for a few months now.

[j_cheung]

Remember July 2007? How can one forget is a more appropriate response!

true! i made more money end of october 1997 in two weeks than i made during the whole decade before. but i won't tell you that i lost more a year later when the russian crisis erupted. and in case you know how much i lost in 1998... please don't tell anybody!

Dr. Naam, it was sort of the reverse for me. I lost more than just money that year.

However, I took a bet with the SET in '99 & held on up to this date. Needless to say, that's why I'm in this forum.

[Irene]

j_cheung,

Your description brought me a tinkle of sadness to recall of the aftermath of July 2, 1997. As one leading corporate recovery guy from the States told us in September 1997 that Thailand was then in the state of a denial and blaming George Soros for all the faults. After the denial, there would be a depression in 1998 and recognition of our errors in 1999. That guy was spot on.

Some punters who used to go to Mayflower Chinese Restaurant at Dusit Thani after the morning session had to change their venue and moved to a noodle shop for lunch. Lamenting of the losses would go on with "what if" questions. Many went into depressions unknowingly and never wish to read any newspapers again. Children suffered from lack of care. I wish there is a book recording all the incidences. Many never returned back to the market. Strangely enough, I never heard of anyone taking his life because of the fallen value. Most bit their tongues and hope for a better day. So many of them has risen from ashes now.

I consider myself lucky for not refinancing my Thai Baht loans for US Dollar loans in April 1997. It was offered to me on a platter with interest rate at 3% while then I paid Thai Baht loan at 14%. I declined because of the fear of taking unnecessary risk at my age.

[Irene]

Heck Yeah, I remember, hope for another one soon to cool this old hot strong Baht down.

Nope, not likely because the current crisis is not with Thailand as a key player. The key player is the United States doing something that is worse than Thailand's laxity in lending in 1997. Up to now, they still do not know the extent of the losses from subprime. This is due to those whiz kid coming out with all sorts of derivative scheme in which no one knows the value until their position are closed. Thailand is now at the tail end of the event and also very nicely Thailand does not now depend on exports to US at a high percentage but only 16%.

[j_cheung]

j_cheung,

Your description brought me a tinkle of sadness to recall of the aftermath of July 2, 1997. As one leading corporate recovery guy from the States told us in September 1997 that Thailand was then in the state of a denial and blaming George Soros for all the faults. After the denial, there would be a depression in 1998 and recognition of our errors in 1999. That guy was spot on.

Some punters who used to go to Mayflower Chinese Restaurant at Dusit Thani after the morning session had to change their venue and moved to a noodle shop for lunch. Lamenting of the losses would go on with "what if" questions. Many went into depressions unknowingly and never wish to read any newspapers again. Children suffered from lack of care. I wish there is a book recording all the incidences. Many never returned back to the market. Strangely enough, I never heard of anyone taking his life because of the fallen value. Most bit their tongues and hope for a better day. So many of them has risen from ashes now.

I consider myself lucky for not refinancing my Thai Baht loans for US Dollar loans in April 1997. It was offered to me on a platter with interest rate at 3% while then I paid Thai Baht loan at 14%. I declined because of the fear of taking unnecessary risk at my age.

Irene, you're right. In fact, one of the biggest local punters just wrapped up his arbitrage operations in exchange for a kitchen apron at that time [sorry, forgot his name]. He had since kept reminding people of another potential meltdown the past year or so but I think this time his past collapse may had sullied his market predictions as of late.

[LaoPo]

"The July 1997 Stock Market Crash, Any of you remember it?"

It's fun to follow this discussion and it's GOOD to have a discussion because we did NOT (could not) discuss the crash in 1997....

My bet is that not even 5 or 10% of the present Thaivisa members were already on the internet or had email access (most certainly NOT in Thailand), had an internet bank account or were dealing their bonds/stocks/assets thru internet.

Television, radio, newspapers and magazines were the only financial info sources because Google didn't even exist yet.

Thaivisa didn't even exist yet.

Times have changed, for the better as the speed of information is a thousands times (sorry million times) faster than back in 1997.

Just some 10 years ago...

LaoPo

[Mighty Mouse]

I remember it well. At the time I was swimming in Pattaya's Palm Villa swimming pool. (now demolished) A mate came and informed me of the crash and how much money had been wiped off the markets.

I held only gold stocks in those days and wasn't particularly worried as the gold price shot up in response to the crash. That was my novice investor view. How wrong was I.

My stocks took a battering along with everything else.

My mate was invested in the Australian Stock Market. He had built up his portfolio from a starting cash amount of AUS $50,000 to just over AUS $2.4 Million, lost the lot within two days. He was heavily leveraged with his broker and they sold him out. He was suicidal.

I held onto my gold stocks for another ten years before recovering all of my losses. I am still active in the markets but now I tend to be more of a short term trader rather than a long term investor. I am an avid follower of charts and consult them daily before making stock market moves. Currently I am totally out of the markets as I fear there is too much downside risk.

[Knightsbridge]

Irene,

Agree with you regarding a trading approach to the SET.However since 2002 I have been a bit of a yield junkie and therefore buy for yield.Hold MCS CM NNCL TPC TAF RPC MBK SPALI MK DRACO BAT-3k etc.etc.

A stock with a yield of 6% plus ,with good earnings growth is my approach.Never been good at market timing but have good steady money over the years(despite politcal economic turmoil ).Hope we're due another 2003.

Best of luck.

Serene,

I was like you before and burnt myself with quite a few high yield stocks. Their liquidity were unnatural and therefore subject to manipulation by a few. At first, I was excited of the high yield and thought why didn't anyone take notice and believed myself to know of the secret. The stocks you mentioned I had all involved before and now close my eyes to these stocks whether they are good or bad and concentrate on those that matter. I understand the stocks in SET50 far better than before after I ignored those small caps. When there is a boost like 2003, blue chips tend to fare better because of their natural liquidity.

I'd agree with you there Irene

In the long run the big quality stable stocks do well in the boosts. I also look out for the potential big stocks that are small at the moment. I've mimicked the King's portfolio and Aberdeen's good governance fund (following the wise and successful)as far as possible and found some gems. Stocks such as SE-ED, BIG-C and UPOIC trickle up nicely. Stocks like the PTT family are a little too risque for me, but think will spin off some good profit this week. With the US in decline this is the good time for mostly holding, but at the same time take small windows of opportunity to profit....