The Stock Exchange of Thailand (SET) remained open at the start of trading on Wednesday, despite the state of emergency declared by Prime Minister Samak Sundaravej in the wake of widespread street protests and confrontations accompanied by the threat of strikes, particularly in the utilities and transportation sectors. Although Thai equity markets have been down over 25% in the past three-and-a-half months, they are at present proving relatively resilient in the short term, given the circumstances.
The army's declaration that it will not become involved in the ongoing strife should assuage the markets, but uneasiness will inevitably persist. The baht fell to its lowest level in a year, and was down 2.1% last month alone. Foreign capital flight is a distinct danger.
The Bank of Thailand has been compelled to intervene in currency markets to support the baht, while currency traders expect it to fall further. The bank's governor, Tarisa Watanagase, has insisted to the press that the weakness is due to external factors, while admitting that inflation, which registered a lower-than-expected 6.4% annual rate in August, was still a concern. Global energy prices, particularly oil, could still negatively affect the country's anticipated 5% annual economic growth. (The figure for 2007 was 4.8%.)
From the start of 2004 through mid-2007, the benchmark SET Index, which is calculated from the prices of all common stocks, inhabited a trading range between 600 and 800. From January to October 2007, it gained over 46% from 620 to 907 even after declining from 883 to 758 between late July and late August 2007. After breaking back up through 800, it oscillated between 750 and 900 until two months ago, when it broke downwards through the 750 support level, established in late 2007, that had buoyed it up in late January 2008.
The index was down over 2.3% on the declaration of state of emergency, and over 3.5% for the first two days of the present week. Oscillating on Wednesday in the 650s, it is currently supported by a wide technical band stretching from 676 all the way down to 576, formed by to-and-fro movements between 2004 and 2007. The 620-640 range represents an especially significant support.
The SET is also supported at its current level by a mild long-term uptrend initiated in May 2004 and confirmed January 2007. This uptrend passes today through the 646 level. As a result, near-term movements in the mid-600s will have longer-term consequences. Should the 620-640 range be broken to the downside, then the anchors of that long-term uptrend at 617 and 583 represent the next major supports, while major resistances dating from the same period begin at 730 and stretch up to 760.
These trends are largely confirmed by the SET50 index, which is calculated from the 50 largest companies by market capitalization. The SET50 tracked the SET fairly closely at the beginning of 2004, when it diverged. During 2004, it began to outperform the SET progressively by a factor oscillating between 20% and 35%, the variation due to its exaggeration of the amplitude of the latter's oscillations on both upswings and downswings.
Due to this dynamic, the SET50 is in a slightly better technical situation than the SET: its resistances to the upside are higher and its supports to the downside are lower in percentage terms. From early 2004 through mid-2007, it was up 55% (or about 20% better than the SET's 46% gain). Overall, the SET50 has rather closely tracked the SET while maintaining its outperformance ratio. Nevertheless, both indices have only a few percentage points to go on the downside before they hit the level of their 2007 low.
The political crisis in Thailand shows no sign of diminishing, and some foreign offices have issued travel warnings for the country. Whatever happens in the near-term to the political situation, in the longer term Thai equities have been weakened. At least two scheduled initial public offerings have been delayed, out of fear of decreased demand for shares.
Political risk indices have for some time reflected the uncertain business environment, and present events will have long-term negative effects on the economy and perceived business environment.
Already foreign direct investment has fallen from US$4.2 billion for the first six months of 2007 to less than $3 billion for the corresponding half-year in 2008. Foreign exchange earnings have also declined from tourism, a sector with major employment. The forced closure last week of several airports due to the unrest does not help, while the national carrier Thai Airways International says its bookings have declined 10% due to unrest. Unfortunately, the new emergency decree in Bangkok is more likely to be the end of the beginning of the turmoil rather than the beginning of the end.
In conclusion, August was not a good month for emerging-market investors. Merrill Lynch's monthly survey of fund managers had identified Thailand as their second-favorite emerging market for the month.
