The baht fell to a one-month low and stocks slumped on concern global investors will shun Thailand after a court ruling to remove Yingluck Shinawatra as prime minister worsened the nation’s political crisis.
The caretaker government installed an acting prime minister to stave off collapse following Yingluck’s ouster yesterday, after she was found guilty of abuse of power related to the 2011 transfer of a top security official. The court decision is credit negative as it renders a near-term solution unlikely, Moody’s Investors Service said in a report today. EM Quest Capital LLP is buying default swaps and selling the baht.
“The political vacuum is likely to be prolonged, which makes it impossible to provide any fiscal support,” Takahide Irimura, the Tokyo-based head of emerging-market research at Kokusai Asset Management Co., which oversees about $35 billion of assets, said in a phone interview today. “With the removal of Yingluck and some of her ministers, it makes it harder for some foreign investors to buy Thai assets.”
The baht fell 0.3 percent, a third day of losses, to 32.480 per dollar as of 3:59 p.m. in Bangkok, according to data compiled by Bloomberg. It reached 32.496 earlier, the weakest since April 8, and has declined 3.2 percent against the dollar in the past six months, the worst performance among the 11 most-traded Asian currencies.
The SET index of shares dropped 1.4 percent to 1,383.54, headed for its lowest close since April 9 and taking its loss this week to 2.7 percent. The yield on the government’s 3.45 percent bonds due March 2019 fell three basis points, or 0.03 percentage point, to 3.09 percent.
Overseas investors pulled $234 million from Thai debt yesterday, the biggest withdrawal in almost two months, according to data from the Thai Bond Market Association. They sold a net $62 million of shares, the most since March 14, stock exchange data show.
“Investors are really concerned whether the outflow of foreign funds will continue amid escalating political tension,” Padon Vannarat, an investment strategist at Maybank Kim Eng Securities (Thailand) Pcl, the nation’s biggest stock brokerage, said by phone from Bangkok.
There was a muted reaction in Thai markets yesterday to the court’s decision that casts doubt over a general election planned for July. The baht declined 0.1 percent, while sovereign debt yields were little changed and the equities gauge fell 0.1 percent.
The cost to insure Thai bonds using credit-default swaps fell one basis point to 124 after reaching the highest level in almost two weeks yesterday, CMA prices show. The nation is rated Baa1 by Moody’s, the third-lowest investment grade, and an equivalent BBB+ by Standard & Poor’s.
Investors shouldn’t be fooled by the lack of an initial reaction yesterday, according to EM Quest Capital.
“This is a clear short in my book,” Phillip Blackwood, who oversees $3.2 billion of emerging-market assets at EM Quest Capital, said in an e-mail yesterday. “There’s a political vacuum, risk to a sovereign downgrade, low investments, and low growth is a clear negative for foreign exchange.” He said he is buying Thai credit-default swaps while selling the baht.
Policy makers in Southeast Asia’s second-largest economy reduced their 2014 growth estimate to 2.7 percent on March 21 from 3 percent earlier that month. They cut the benchmark interest rate to 2 percent in March, the lowest level since 2010, and then kept it unchanged last month. The impact of monetary easing may be limited as political uncertainty weighs on economic expansion, according to minutes of the central bank’s April 23 meeting.
Not everyone is bearish on Thai assets amid the turmoil. Peter Taylor, who helps oversee about $50 billion in emerging-market equities at Aberdeen Asset Managers Ltd., said he favors Thai equities over its currency and bonds because they’re cheap.
“We are not blind to macro-political risks, but we are much more focused on company fundamentals and valuations,” Taylor said at a meeting in New York yesterday. “Thailand has been a perennially good-value market, particularly in that small-cap space.”
Richardson said the reaction to Yingluck’s ouster was muted in securities markets because investors in developing-nation assets are generally more optimistic than they were at the start of the year.
“Not to say Thailand’s a good place to be,” he said. “The market’s just fairly sanguine about a number of issues at the moment and not looking to push the downside on any particular themes.”
To contact the editors responsible for this story: Nikolaj Gammeltoft at firstname.lastname@example.org Andrew Janes, Simon Harvey