Posted: 19 December 2006 1928 hrs
HONG KONG: Asian stocks slumped on Tuesday, with investors spooked by the worst-ever losses in Bangkok where the military government imposed capital controls reminiscent of the 1997 Asian financial crisis.
The controls, aimed at curbing a massive appreciation in the local currency, stunned the region, prompting heavy stock sales in Thailand that wiped about 23 billion US dollars off the market and undermined sentiment elsewhere.
The Thai baht has been a standout unit in the region after rising to a nine-year high against the greenback, putting pressure on the key exporters and prompting complaints by powerful union and business lobby groups.
The government, however, may have overstepped the mark by seeking to rein in the baht with the Thai benchmark index plunging nearly 20.0 percent after the Stock Exchange of Thailand (SET) reopened following a trading suspension.
By the close the composite index had nosedived almost 15 percent or 108.41 points to 622.14, off a low of 587.92. It was the biggest one-day fall in the 31-year history of the exchange.
Among Thailand’s closest neighbours, Kuala Lumpur was down 1.96 percent, Jakarta slumped 2.85 percent, Singapore was off 2.2 percent while Mumbai shed 2.54 percent as Hong Kong closed down 1.19 percent.
“The fall was a knee-jerk reaction to the crash in the Thai market,” said Kenny Tang, associate director at Tung Tai Securities, in Hong Kong, adding: “I believe the crash (there) will have limited impact on local shares.”
Under new rules announced by the Bank of Thailand (BoT) late Monday, 30 percent of all foreign capital inflows above 20,000 dollars will be held by banks for 12 months in a bid to curb a sharp appreciation of the baht.
This means for every 100,000 dollars invested in stocks, for example, the banks will hold back 30,000 dollars. No interest will be paid on that money and it would be lost if the investment is pulled out of the country within a year.
Central bank figures showed that as much as 950 million dollars of foreign capital flew into Thailand in the first week of December, rising sharply from the average of 300 million dollars per week last month.
“The new measure really dampened sentiment. It (makes) the Thai stock market less attractive for short-term foreign investors,” said Sukit Udomsirikul, a senior market analyst at Siam City Securities.
Asian stocks have been primed for a correction with benchmarks trading at or near record and multi-year highs and dealers said that with just three business days before Christmas, investors might feel compelled to sell.
“It’s the contagion effect of the capital controls imposed by the Thai government,” chief economist with RAM Consultancy Services, Yeah Kim Leng, told AFP in Malaysia. “It has affected foreign investor sentiment and confidence.”
Tokyo fell 1.09 percent, Manila was down 0.98 percent and Seoul shed 0.38 percent with dealers saying turbulence in Bangkok had probably dashed hopes for a year-end rally.
However, losses were modest in Sydney, Taipei and Wellington where local factors outweighed the impact of the chaos in Thailand.
“This is in a way reminiscent to the pre-1997-98 crisis. Of course capital controls are frowned upon, especially (by) portfolio investors, so as a result, it’s a knee-jerk reaction on the regional markets,” Yeah said.
The Asian financial crisis had its roots in Bangkok when excessive borrowings in US dollars coupled with high interest rates forced the government to float the currency, which then promptly collapsed along with the economy.
Over late 1997 and 1998, the contagion spread across the region. Currencies and stock markets failed as businesses went bankrupt and recessions followed, with governments frantic to shore-up their economies.
Yeah said, however, that a repeat of that crisis was unlikely.
“The monetary authorities have learnt their lessons so there is now less foreign currency exposure but nevertheless it signals a pre-emptive strike on
hot or speculative short-term capital inflows,” he said. – AFP/so
[...] Many news broke out today too, Asian stocks slumped, with investors spooked by the worst-ever losses in Bangkok where the military government imposed capital controls reminiscent of the 1997 Asian financial crisis. While SET shed 20% losses , regional stock markets fell between 1% – 3%. Read more here. Also, Singapore experienced the highest amount of rainfall today in the last 75 years. It causes flood in low lying areas, jams, fallen trees all over Singapore. I was caught in jam travelling along Lornie Road, police cordoned off part of the road next to MacRitchie reservoir as it has spilled beyond the overflow channel. On my way back to Boon Lay, I wasted another 15 minutes because of a fallen tree that blocked 2 lanes of the 3 lane PIE after Jurong Town Hall exit, the kids seemed amused, first time seeing cars under trees. Check out the detailed news page here. [...]