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Thai stocks down after bank move Thais lift measure on index fall
(about 6 hours later)
Thai stocks fell to their lowest in two years as foreign investors led selling in response to Bank of Thailand moves designed to halt currency speculation. Thailand will ease currency controls on foreign investment in the stock market after shares suffered their worst daily fall in 16 years and closed down 14.8%.
The moves mean 30% of non-trade related foreign exchange sold for local baht currency must be deposited interest free with the central bank for a year. Moves had been announced to deter overseas speculators from flooding the market and prevent further rises in the value of the baht.
The idea is to deter speculators from flooding the market and prevent further rises in the value of the Thai baht.
The rising currency had threatened the country's export industries.The rising currency had threatened the country's export industries.
Historic fall But as foreign investors sold stock the finance minister said equity investment would not be included in the new move.
The SET stock market index ended morning trading 11.76% down. It had earlier been suspended for half an hour after falling 10%. If you get a major stock market sell-off in one day based on a policy measure, I think the market will question the [bank] leadership ABN Amro
The bank is to meet brokers and asset management firms to discuss its moves, which also include a rule that requires all new foreign investments over $20,000 to stay in the country for at least a year. The Bank of Thailand had said late on Monday that 30% of non-trade related foreign exchange sold for the local baht currency must be deposited interest free with the central bank for a year.
The SET fall of 85.89 points was the biggest one day drop in its 31-year-history. The measures also included a rule that required all new foreign investments over $20,000 to stay in the country for at least a year.
The central bank's decision is its third recent attempt to stop currency speculation. However, after the stock market slide Finance Minister Pridiyathorn Devakula said on television that from Wednesday foreigners would be able to trade equities free of the restrictions on short-term fund inflows.
The restrictions still apply to overseas investments in bonds.
Money flowing in
The SET stock market index ended trading at 622.14 points - after its biggest one-day fall since Saddam Hussein invaded Kuwait in August 1990 - with the banking, energy and telecommunications sectors all hit.
The reverberation throughout the region was the most dramatic since the 1997 Asian financial crisis.
In 1997, dramatic outflows of foreign funds - initially in Thailand - led to the Asian financial meltdown.
Monday's move by the central bank was its third recent attempt to stop currency speculation.
The authorities have felt vulnerable at so much overseas money circulating in the economy as investors have looked to speculate on the markets or baht.The authorities have felt vulnerable at so much overseas money circulating in the economy as investors have looked to speculate on the markets or baht.
Central bank figures showed that up to $950m of foreign capital came into Thailand in the first week of December, up from the average of $300m a week in November. Central bank figures showed that up to $950m of foreign capital came into Thailand in the first week of December, up from an average of $300m a week in November.
Heavy selling Analysts were left wondering why the bank would make such a "draconian" move.
The Stock Exchange of Thailand is to ask the bank to review the measure, but the Bank of Thailand said it was too soon to reconsider its move. "Frankly, if you get a major stock market sell-off in one day based on a policy measure, I think the market will question the leadership. It's as simple as that," Shahab Jalinoos, a strategist at ABN Amro Bank in Singapore, said.
Bank assistant-governor Nitaya Pibulratanagit said the fall was due to foreign selling, and that overseas investors should not panic. The baht had hit a nine-year high of 35.09 against the US dollar on Monday.
Meanwhile, Bank of Thailand deputy-governor Atchana Waiquamdee said it was possible that the money would return to the Thai stock market after the heavy foreign selling.
Dramatic outflows of foreign funds ten years ago led to the Asian financial meltdown which started in Thailand.
The baht, which hit a nine-year high of 35.09 against the US dollar on Monday, weakened to 36.17 early on Tuesday in reaction to the bank moves, but then rose to 35.69 by midday.
The baht, and Thai economy, had been under pressure following September's military coup in the country, but the authorities had moved to reassure markets and investors.The baht, and Thai economy, had been under pressure following September's military coup in the country, but the authorities had moved to reassure markets and investors.