International tension sap SET optimism

Pattera Dilokrungthirapop, executive director of the Association of Thai Securities Companies, said the US Federal Reserve’s decision last week to inject more liquidity into the country’s financial system via quantitative easing (QE) had led to market bullishness driving both the Stock Exchange of Thailand’s index and its trade volume.
“However, new risks have since emerged: conflicts between the US and Muslims globally and confrontation between China and Japan. These factors have caused investor nervousness about whether they will escalate and affect the global economy, so we have to delay the upward revision of our SET Index target,” she said.
The association initially believed the latest QE round had the potential to drive the index beyond the current target of 1,300 points.
The Thai stock market is, however, still attractive for investment, she said, citing its price-to-earnings ratio of 12 times and the fact that listed firms can still make healthy profits, which are growing by 14-15 per cent this year.
Thanarat Possawong, managing director of Hua Seng Heng Gold Futures, said the US stimulus via QE had boosted gold prices, which are expected to move between US$1,770 and $1,790 per ounce.
“The market now waits to see how it will affect the US real economy but, if there are new risks, they could push the price up to $1,800 per ounce,” he said.
Banluesak Pussarangsi, an economist at CIMB Bank, said anti-US protests and the China-Japan territorial row had not yet significantly affected the global economy.
China and Japan could settle their dispute via the International Court of Justice, besides which they and South Korea are negotiating free-trade pacts, said Banluesak.
 
BONDS
Krungsri Asset Management fund manager Sira Klongvicha said the international conflicts had not yet affected the bond market, which has been boosted by recent moves by the central banks in the US and the euro zone.
These issues would, however, affect the bond market if oil prices shot up over $120 per barrel, which would send an impact via global interest rates.
“The other issue of concern is an exit strategy if central banks quickly mop up the new liquidity, as it would cause interest rates to rise too quickly and affect those holding long-term bonds,” said Sira.
Meanwhile, Virabongsa Ramang-kura, chairman of the Bank of Thailand’s board, yesterday discussed with the bank’s executives a plan to deal with the possibility of a large capital inflow caused by QE in the United States, which could lead to high volatility in the exchange rate and stock prices, with a detrimental effect on the economy.
Tisco’s Economic Strategy Unit said that although the central bank is expected to let the baht rise gradually, it is unlikely to impose anything like the severe measures adopted in 2006. Tisco forecasts the baht averaging 30.30 per US dollar next year.
Somboon Jitbentham, senior director at the central bank, said QE had not adversely affected Thai banks, which still have ample liquidity despite competing with one another for deposits.