Thai stocks jump most in five years on optimism for transition

SET Index surged 4.6% to 1,477.61 at the close and the baht advanced 0.9% to 35.30 a dollar

16:44 October 14, 2016

KUALA LUMPUR/SINGAPORE: Thai stocks jumped the most since 2011 and the baht strengthened on prospects for a smooth transition following the death of King Bhumibol Adulyadej, the world’s longest reigning monarch.

The benchmark SET Index surged 4.6 per cent to 1,477.61 at the close and the baht advanced 0.9 per cent to 35.30 a dollar after gaining as much as 1.6 per cent earlier. The SET lost 6.5 per cent in the first three days of the week after the royal palace said Sunday the king’s condition was unstable. That brought the measure’s 12-month price-to-earnings ratio to the cheapest level since February.

“The selling looks overdone,” said Song Seng Wun, a regional economist at CLIMB Private Banking in Singapore. “With the military firmly in charge, the market should stabilise. You won’t have chaos when the generals are in charge.”

Thailand’s government called on the nation to avoid “joyful events” for 30 days, to dress in mourning for a year and pray for the king’s soul to protect the nation. It also signalled the 88-year-old king’s only son will take the throne. Bhumibol was a symbol of unity in a country rocked by 10 coups during his seven-decade reign, but had been ill for years, making limited public appearances and spending most of his time in the hospital. Crown Prince Maha Vajiralongkorn, 64, doesn’t enjoy the same adulation.

The baht has declined 1.3 per cent this week. The cost to insure the nation’s debt rose five basis points to 106 basis points on Thursday in New York, completing a 23 basis-point increase in three days that was the steepest in more than three years, according to CMA data.

“The Thai baht will probably be a little more volatile for a few weeks,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “There are more questions than answers with regards to the political outlook.”

The 30-day volatility on the SET Index climbed on Wednesday to the highest level since January. The baht slid to the lowest since January and at one stage was heading for its worst week in a decade.

The SET rose 15 per cent in the first nine months of the year, the most among Southeast Asia’s major gauges after the Jakarta Composite Index. Stocks entered a bull market in July and reached the highest level in 15 months in August as economic growth accelerated and emerging-market assets rallied.

Equities had also been aided as stimulus measures to help shield the country from China’s economic slowdown made the nation’s shares a haven for overseas funds. Global funds have poured $3.8 billion into Thai equities this year, the biggest inflow in Southeast Asia, according to data compiled by Bloomberg.

Fundamentals ‘Unaffected’

“Thailand’s economic fundamentals remain unaffected, which should help it to weather this storm,” Jingyi Pan, a Singapore-based strategist at IG Asia Pte, said by email before the announcement. “The military government which has overseen the economy during a period of increasing GDP growth, could help to guide the country through the period.”

Global funds pulled more than $950 million from Thai bonds in four straight days of selling, heading for the largest weekly outflows since May 2013. The nation’s 10-year government bonds rose on Friday, pushing the yield down seven basis points to 2.22 per cent. That pared its weekly increase to one basis point.

The nation’s bond market had been struggling even before the king’s health spurred further declines, as higher oil prices threatened to spur inflation and prompting traders to price in chances for a Bank of Thailand interest-rate increase. Thailand’s sovereign notes have slumped 2.1 per cent in the past six months, compared with gains of more than 6 per cent in India and Indonesia and a 2.6 per cent advance in Malaysia.

Stimulus Measures

Southeast Asia’s second-biggest economy may grow as much as 3.5 per cent in 2016 from 3.2 per cent last year on the government’s accelerating spending, according to the National Economic and Social Development Board. Prime Minister Prayuth Chan-ocha, who took power in a May 2014 military coup, has issued a series of economic stimulus measures valued at more than 645 billion baht since September 2015 to help shore up local demand.

There’s now a potential buying opportunity, according to Soo Hai Lim, investment director at Baring Asset Management (Asia) Ltd. in Hong Kong.

“A lot of people are nervous about the situation,” he said. “It is something that investors cannot dismiss outright but with the military in charge, the situation in Thailand should be manageable. Quite a number of companies are still delivering quite good growth despite the challenging macro economic environment. This incident is unfortunate but it’s something we’re aware of. The king has been sick for a while.”