Fears over further market sell-off

By Finance Reporters

The Nation

Baht could drop if SET falls amid capital outflows; investors jittery

Markets could be swamped by panic selling this week following the first-ever US debt downgrade, while the unstoppable weakening of the EU and US economies could spell deep trouble for Thailand and Asia in a few years, economists and market analysts warned on the weekend.

Usara Wilaipich, a senior economist at Standard Chartered Bank (Thai), said slipping sovereign ratings in the West and fears of another global recession could further stoke a worldwide sell-off of stocks that started last week.

Ratings agency Standard and Poor's on Friday cut the US' top rating of "AAA" to "AA+", citing its concerns over the intransigent public debt squeeze and faltering political institutions. It threatened to downgrade the US even further.

In the near term, foreign capital is likely to flow out of Asian markets on concerns of a global slowdown and flow more into Asian fixed-income and bond markets.

"Short-term impacts may be mixed, depending on the net impact each day from outflows from stocks and inflows into bonds, and Asian currencies will likely be volatile during the period," Usara said.

Over six to 12 months, Asian stock markets could see temporary negative impacts and bond markets in Asia will see gradual inflows of foreign capital, including from private funds and central banks.

"Long-term funds will likely diversify into fixed-income and bonds in Asia as the region is stronger with low public debt levels and high savings," she said.

"Asian currencies including the baht will likely appreciate in the next six to 12 months," she added.

Somprawin Manprasert, an economist at Tisco Securities, said financial markets were likely to run into volatility in capital movements, as funds flee to safer assets, as well as in exchange rates.

Thailand, in the short term, could experience currency fluctuations against the US dollar and the euro, he said.

Thai exports and tourism were likely to stumble over the next one to two years, he said.

The problem was not only a lowering of the US credit rating, but the spectre of the US economy heading into a double-dip recession, said Parson Singha, chief markets strategist at HSBC Thailand. There was likely to be market jitters with more risk aversion early this week. "But nothing is certain as last Friday's sell-off in the Thai stock market was followed by a rebound on the same day," he said.

Teerana Bhongmakapat, dean of economics at Chulalongkorn University, said lingering fallout from the 2008 crisis had played out in the current sovereign crisis in the Eurozone and the faltering US economic recovery.

Asia had not yet taken the full brunt of repressive forces due partly to a time-lag and lesser economic integration with the West compared to the intertwined pan-Atlantic economies.

The EU and US economies would grow slower for the rest of this year and next year. "If these economies do not revive over the next two or three years, Asia would be in deep trouble." Teerana said the gold price might rise further.

Praipol Koomsup, an economist at Thammasat University, said market panic was expected to persist. If foreign investors sell off stocks today, leading to capital outflows, the baht could drop, said Praipol, a member of the Bank of Thailand's Monetary Policy Committee.

However, central banks around the globe would not have more choices to diversify their assets away from dollar-denominated debt, as the euro was also under pressure from debt crises.

"I think the Bank of Thailand and other central banks will not adjust their portfolios much, given the limited safe-haven assets available, and gold is not a good option," he said.

-- The Nation 2011-08-08

and gold is not a good option," he said. --- yes, still not so good, just over $1700 already

Gold is already too high and could crash as well.

"I think the Bank of Thailand and other central banks will not adjust their portfolios much, given the limited safe-haven assets available, and gold is not a good option," he said.

Except for the 30 tons of gold we recently added, he failed to mention...

edit - add link http://cnbusinessnews.com/thailand-purchases-another-30-tonnes-of-gold/

Edited August 8, 201114 yr by cloudhopper

And if the Baht fell in value this would be a bad thing ?

Cheaper exports, more tourists, .....terrible !