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STOCK MARKET

SET drops sharply as FED rejects further easing

By SIRIPORN CHANJINDAMANEE

THE NATION

The Stock Exchange of Thailand (SET) Index unexpectedly nose-dived below the 1,000-point psychological level for the first time in six months yesterday, in the absence of additional quantitative easing (QE) from the US despite strong signs of recession.

The Thai market ended down 39 points, or 3.79 per cent, at 990.59 points on turnover of Bt32.48 billion. The index was at its lowest since February. The SET joined global bourses in ending lower, led by the 8.8-per-cent loss in Indonesia, after the US Federal Reserve did not announce third-round QE as expected, but instead announced "Operation Twist", which was met with worldwide disappointment.

As investors ran for safety, the US dollar yesterday appreciated against other currencies, including the baht, which weakened to 30.75 per dollar, before ending the day at 30.71. Since the end of last month, it has weakened by more than 2 per cent. The baht has swung heavily against the dollar this year, from a peak of 29.50 to a low of 31.

"Operation Twist is not deemed to be very helpful, in light of the sagging economic environment in the US. Meanwhile, Europe is reeling from its public-debt problems. Though the Group of 20 and the International Monetary Fund will convene this week on the debt issue, this could just add pressure for belt tightening without concrete measures to deal with the debts," said an analyst from DBS Vickers Securities (Thailand).

The Fed said it would shift US$400 billion (Bt12 trillion) of its shorter-term debt portfolio holdings into longer-term bonds, a move it said would lower rates for mortgage holders and businesses. The plan - nicknamed Operation Twist - would also entice banks to put some of their idle reserves to work. However, in announcing the new plan, the Fed warned of "significant downside risks to the economic outlook", with the economy struggling with slow growth, high unemployment and a depressed housing market.

In further bad news, Moody's Investors Service downgraded Bank of America, Citigroup and Wells Fargo, believing US authorities are less capable of bolstering the banks. Italy's sovereign-rating downgrade earlier this week also highlighted the possibility of a crisis in major European countries, which could force European banks to try to raise huge amounts of capital. It is now feared that credit downgrades will lead to a credit crunch, as happened during the sub-prime crisis in 2008.

The DBS analyst added that amid the slew of bad news externally, the Thai market lacked local catalysts, as most of the new government's stimulus measures have already been approved, except for the corporate tax cut.

"There will be more not good external news for the rest of this month. Now, all eyes are on whether monthly economic indicators will be as poor as the Fed has warned. Next month, we will learn whether Greece can meet its debt obligation," added an analyst from KGI Securities (Thailand). "Some European banks are now facing liquidity problems. Things do not look good."

SET President Charamporn Jotikasthira remained confident that amid the gloomy outlook, the Thai market should be resilient thanks mainly to relatively positive economic fundamentals.

The heightened global risks would be thoroughly discussed by the Monetary Policy Committee (MPC) at its October 19 meeting, said Songtham Pinto, director of the Bank of Thailand's Macroeconomics Office.

"In the previous meeting, the MPC instructed the central bank to closely monitor the global economy, given the increasing risks. In the next meeting, the discussion will take into consideration all factors, such as high inflationary pressure and heightened global risks," he said.

As for Operation Twist, Songtham admitted that in light of the current low consumption and shaky job markets, monetary policies alone could not boost the economy, adding that more measures are needed to boost employment and productivity.

-- The Nation 2011-09-23

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