Set Takes A Bashing , Due To Violence

[cojones]

CRISIS IN THE SOUTH: Crackdown takes its toll on the SET

Published on November 03, 2004

Foreign investors now ‘selling Bt1 bn in stocks each day’

It took six months before foreign investors returned to China after the Tian’anmen bloodbath in 1989. And about a year for foreign investors to head back to Malaysia after it imposed capital controls in 1988.

In the case of Thailand, nobody can tell when foreign investors will show up again, after they ditched equity holdings totalling at least Bt6 billion over the past week following escalating violence in the turbulent South.

“At this preliminary stage, the Thai stock market is certainly feeling an impact because it’s the most sensitive part of the economy. Foreign investors have been net sellers of Thai equities by Bt1 billion a day over the past two or three days,” said Prasarn Trairatvorakul, president of Kasikornbank.

“Now nobody can tell when foreign investors would come back to the Thai market again. But I think it should take less time than in the case of [either China or Malaysia], depending on the ability of authorities to bring the situation under control. If they allow the violence to spill over into Bangkok, then it would be a big story.”

Over the past week, foreign investors have unloaded some Bt6 billion net in equity from the local market. The SET index has also lost about 5 per cent over the period to close at 631.99 points yesterday.

At the same time, Pridiyathorn Devakula, governor of the Bank of Thailand, said the unrest in the predominantly Muslim South and recurring bird-flu outbreaks should have little impact on economic growth.

Pridiyathorn said he viewed the unrest in the South, in which 78 Muslims died in Army custody last week, as an extended security problem that had caused no serious damage to the overall economy.

“It has already been going on for a long time and I don’t think it will affect the economy. This is something we have seen since January,” he said.

At least 440 people have died in the South this year, mostly in three predominantly Muslim provinces bordering Malaysia, amid growing tensions between security forces and Muslims.

Last week, the central bank cut its economic-growth forecast for this year to between 5.5 per cent and 6.5 per cent from a July projection of 6 to 7 per cent, reflecting the impact of higher oil prices.

Praipol Koomsup, an economist at Thammasat University, said the latest incident in Narathiwat, in which one victim was beheaded, did not surprise him, because he had anticipated more violence would follow the recent tragedy.

The violence, however, is unlikely to spill over from the three southernmost provinces, he said, so its impact on the economy would be limited.

Praipol was concerned about the country’s troubled image in the eyes of the international community, which would take time to recover.

Nualnoi Treerat, an economics lecturer at Chulalongkorn University, also believes the violence in the deep South would be prolonged.

Looking back over the last 10 months, Nualnoi said it indicated that the government could not solve the problem. The dispersal of the mob outside Tak Bai police station on October 25 by government forces that led to the death of at least 85 protesters had worsened the situation, she said.

The government should restrain from using force to curb violence, because it has proven futile, she said.

Kitti Limsakul, another Chulalongkorn economist and a former vice finance minister, does not think that violence will escalate, as some critics have predicted. The public should allow more time for the government to get rid of the problems, he said.

The current unclear situation in the United States had contributed much more to the fall in the stock index in Thailand, he said.

A Reuters poll indicated that the median 2004 gross-domestic-product (GDP) growth projection of 12 analysts – at 6 per cent – was lower than a July forecast for 6.5 per cent, which analysts attributed to high oil prices.

A slowing global economy is expected to further trim Thai growth to 5.4 per cent in 2005. In 2003, GDP grew 6.8 per cent here.

“The headlines of violence would presumably hurt the tourism industry, which is of course an important sector in Thailand. People do get scared when they read something like that,” said David Cohen of research house Action Economics in Singapore.

Economist Supavud Saicheua at Phatra Securities said violence in the South might produce more economic damage than expected if it went unchecked.

“Although difficult to quantify, our economist estimates that in the worst case, tourism revenue would fall by two percentage points to 3 per cent of GDP,” Phatra Securities said in a research note to clients.

Supavud said if Prime Minister Thaksin Shinawatra failed to pacify Muslims, who make up about 10 per cent of the population, his ruling party would capture fewer parliamentary seats in a general election expected in February.

“As a result of increased social instability, economic uncertainty and a weakened government, we think the stock market would react by applying a higher investment-risk premium to the Thai market,” he said.