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Thai Stocks, Currency Plunge On Concerns Over King's Health, Fed Hike

by October 12, 2016 General

Ever since the 1997 Asian Financial Crisis, investors have kept a close eye on financial developments in Thailand as canary in the Asian financial conditions coalmine, and overnight there was little to look forward to after Thai stocks crashed the most in over a year, plunging as much as 6.9% before settling 4.1%, lower while the baht currency tumbled 1.1%, its steepest plunge in three years. The Thai stock market was the worst performing in Asia, with the sharp selloff attributed to concerns about the health of the king and “sudden” fears about the prospect of a December rate hike.

Thai stocks approached a correction, after sliding 8.8% in the week, the most among about 100 benchmark share indexes tracked by Bloomberg. Default risk also spiked with Thai CDS rising 8%, and more than 12 per cent since the start of the week. The Thai currency traded at 35.768 per dollar, headed for an eighth day of losses in the longest stretch since July 2015. It sank as much as 1.5 percent to 35.902, the lowest since Jan. 26, and is headed for its steepest weekly drop since 2013. The 10-year sovereign bond yield rose five basis points to 2.35 percent, the highest since January.

“Concern about the U.S. interest-rate increase and dollar strength will continue to damp sentiment and foreign fund flows,” said Koraphat Vorachet, an investment strategist at Capital Nomura Securities Pcl in Bangkok.

In addition to fears about tightening monetary conditions, and an imminent capital outflow should the Fed hike in a rerun of last December, Thailand’s stocks and currency have fallen every day after the royal palace said Sunday that the condition of King Bhumibol Adulyadej, the world’s longest reigning monarch, was unstable, Bloomberg reported. In a statement, the royal household bureau said the king’s blood pressure had dropped as he was being prepared for a procedure to treat kidney failure.

“The 88-year-old monarch’s health is closely watched as he is revered by many for what they say has been his unifying presence during a seven-decade reign. Foreign funds pulled $426 million from Thai sovereign bonds in the first two days of the week, exchange data show.”

The baht’s slide was “mostly related to the king’s health,” said Sean Yokota, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore. “It’s about the political stability that the king has provided and his being a reconciliatory buffer between the major parties.”

Quoted by Bloomberg, Kesara Manchusree, the Stock Exchange of Thailand’s president, said on Tuesday that Thailand’s stock market faces a “challenging time” with a jump in volatility amid lingering concern over domestic and overseas factors,  The fundamentals of the Thai economy and listed companies’ earnings remain strong, she said.

As a reminder, Thailand has been ruled by a military junta since 2014, and last month voters backed a new constitution to give the military more power, despite opposition from both main political parties.