Thai shares fall on fresh euro-zone worries

 The SET Index plunged 16.60 points or 1.38 per cent to end the day at 1,190.65 on turnover of Bt45.8 billion. The SET fell as low as 1,185.89 in intraday trading. Foreign investors turned to net sellers of Bt4.9 billion in stocks yesterday and Bt2.3 billion on Wednesday.
While European stocks opened broadly lower yesterday, Asian stocks declined as Greek politicians struggled to form a coalition government and European officials warned that the latest tranche of bailout cash could be the last.
Coalition talks have failed so far after the second-placed Radical Left Coalition Party, or Syriza, insisted that Greece’s tough austerity programme – part of its international bailout commitments – be cancelled or frozen. Greece’s jobless rate rose to 21.7 per cent in February with over a million people officially unemployed.
SET president Charamporn Jotikasthira attributed the market slump to the vagaries in the eurozone, particularly the growing concerns that Greece’s debt woes could be rekindled. While recommending investors focus on stocks with good fundamentals to withstand negative factors, he said businesses would need to focus more on production costs to cope with a likely dent in profits.
Arphaporn Sawaengphak, senior director of DBS Vickers Securities (Thailand)’s research department, predicts continued portfolio adjustment among foreign investors. Besides Greece, investors are jittery over the health of Spanish banks.
Thai companies’ earning are as good as expected, but the SET was recently boosted by an advance in small stocks, she said. However, they cannot sustain negative factors, so the SET sank below the 1,200-point psychological level.
Year-to-date, the SET has gained 17.74 per cent while its market capitalisation has climbed to Bt9.65 trillion.
The eurozone crisis was a major reason for the share sell-offs in the latter half of 2011. Then, the Thai stock market lost slightly, after a run-up of 41 per cent in 2010, while the baht retreated against the US dollar, after appreciating 9.8 per cent in 2010. According to Escap’s annual report, foreign direct investment into Thailand was US$8.4 billion (Bt261.5 billion) in 2011, compared to $9.7 billion in 2010 and $4.9 billion in 2009.
More troubles are brewing as European banks are deleveraging, sparking the need for huge capital. This will likely squeeze the funds available for non-financial corporations. The huge need indicates the possibility of smaller fund flows to small countries.
Standard & Poor Ratings Services estimates that non-financial corporations in the eurozone, UK, US, China and Japan would stand at $43 trillion-$46 trillion over five years, including $30 trillion of debt refinancing and $13 trillion-$16 trillion of new money needed to spur growth.
“This global wall of non-financial corporate debt will potentially compound the credit rationing that may occur as banks seek to restructure their balance sheets, and bond and equity investors reassess their risk-return thresholds,” said Jayan Dhru, senior managing director of global corporate ratings for S&P.
“Combined with the eurozone crisis, the slow US economic recovery and the prospect of a slowing economy in China, this raises the downside risk of a perfect storm in global corporate credit markets.”
The estimate assumes that global banks and debt capital markets will largely be able to continue to provide the majority of liquidity.
“Existing or new sensitivities could flare up and derail our base case,” he said. “Governments and central banks have less fiscal and monetary flexibility to prevent serious problems emanating from future market disturbances. A perfect storm scenario would likely cause financing disruptions even for borrowers that are not highly leveraged.”