Thai bourse up after Cyprus bail-out but strong baht still a worry

By Business Desk (The Nation) | Source: ANN
Cyprus’ success in winning an international bail-out sparked a rally in Asian bourses including Thailand’s yesterday, but some stock analysts consider that a fall in the local exchange is far from over, chiefly because of the baht’s appreciation.

Cyprus dodged a disorderly default and unprecedented exit from the euro currency by bowing to demands to shrink its banking system in exchange for a 10-billion euro bail-out. Similar to what happened in Thailand after the 1997 financial crisis, the Mediterranean country agreed to shut down Laiki Bank (or Popular Bank in English) and transfer only its good assets to the Bank of Cyprus while bad assets would be dissolved later.

Asia-Pacific stocks rallied on the good news. Tokyo climbed 1.69 per cent, or 207.93 points, to end at 12,546.46 and Seoul climbed 1.49 per cent, or 28.96 points, to 1,977.67, while Sydney added 0.46 per cent, or 22.9 points, to 4,990.2. European stock markets also rose solidly at the start of trading yesterday.

The SET Index rebounded by … per cent on the day, after losing more than 100 points in the past five trading days, including a 50-point loss on Friday. It gained 44.98points or 3.04 per cent to 1523.95 points, on turnover of 58 billion baht (US$1.9 billion).

“The rebound is not surprising given the sharp fall of 3.3 per cent last Friday, which is in line with our expectation for a sharp contraction during March 14-18 due to high speculation,” Asia Plus Securities said in a research note. “This is not the end of the correction, though. Historically, a real rebound must be followed by a sharp reversal. Despite some purchases late Friday, that’s not enough to create a sharp reversal.”

The house expects that if the Stock Exchange of Thailand cannot exceed 1,516 points, it could fall to 1,436.

Phillip Securities noted that despite the positive development in Cyprus, investors were still concerned with the baht’s appreciation. They expect the Bank of Thailand to launch measures to stem the appreciation, which would in effect ruin investment sentiment.

Spurred by the Cyprus development, more capital inflows to Thailand are expected.

Global funds bought US$2.9 billion (85 billion baht) more of Thailand’s debt than they sold in March, adding to net purchases of $6.4 billion in the first two months of 2013, according to the Thai Bond Market Association. Yesterday, the baht strengthened 0.1 per cent to 29.26 per dollar as of 3.27pm in Bangkok, according to data compiled by Bloomberg. The currency touched 29.08 on March 20, the strongest level since July 1997.

DBS Vickers Securities (Thailand) expressed the view that the Thai bourse remained attractive given the country’s strong economic fundamentals. While the export sector will suffer from the baht’s appreciation against the US dollar, the government’s planned 2-trillion baht investment in infrastructure should boost domestic consumption and investment, which will benefit “domestic plays” – the companies that rely on domestic demand.

The house maintains its end-2013 SET Index target at 1,688 points.

On Friday, in a statement aimed at calming market jitters, SET president Charamporn Jotikasthi-ra insisted that the market outlook was supported by the strong fundamentals of Thailand’s economy and upbeat earnings of Thai listed companies.

So far this year, the SET Index has risen by more than 6.25 per cent.

*US$1=29.2 baht