Amid Thai Turmoil, Investors Seek Safety

News of a military coup in the country had investors fleeing the baht in favor of U.S. government debt

From Standard & Poor's Equity Research

In 1997, the devaluation of Thailand's currency, the baht, preceded a currency crisis in Asia and an economic downturn worldwide. Nine years later, another crisis in the Southeast Asian nation has seized the attention of investors worldwide.

On Sept. 19, Thailand's army commander ousted Prime Minister Thaksin Shinawatra in a military coup while the PM was in New York for the start of the United Nations General Assembly. The army declared martial law and revoked the constitution, according to press reports. A military spokesman said army commander-in-chief Gen. Sondhi Boonyaratkalin would be acting prime minister.

A written statement relayed by all television channels said the armed forces and police were in control of Bangkok, which remained peaceful, and appealed for calm, according to a Reuters report. From New York, Shinawatra declared a state of emergency in Bangkok amid signs of the first attempted coup in the Southeast Asian nation in 15 years.


  The crisis drew predictable reactions in world financial markets on Sept. 19. In currency markets, the Thai baht fell 1.3%, to 37.79 per dollar, from 37.29 the day before, the biggest decline since July, 2002. The dollar index, which tracks the greenback's value against a basket of currencies, was up 0.13, to 85.93 on the news, though it declined against Japanese currency, to 117.64 yen.

Investors sought the safety of U.S. government debt amid the uncertainty. Ten-year Treasury notes rallied 18/32 in price to 101-04/32 for a yield of 4.739% after advancing earlier on a report the U.S. core producer price index fell 0.4% in August. The two-year note was up 04/32 to 100-04/32 for a yield of 4.810%, while the 30-year bond was up 31/32 to 94-14/32 for a yield of 4.861%.


  International equity markets were hit with selling in the wake of the news. In London, the Financial Times-Stock Exchange 100 index fell 58.4 points, or 0.99%, to 5,831.8. Germany's DAX index dropped 52.87 points, or 0.89%, to 5,873.46. In Paris, the CAC 40 index was down 30.97 points, or 0.6%, to 5,115.99.

In the U.S., the Dow Jones industrial average fell 14.09 points, or 0.12%, to 11,540.91, while the broader Standard & Poor's 500 index shed 2.87 points, or 0.22%, to 1,318.31. The tech-heavy Nasdaq composite slid 13.38 points, or 0.6%, to 2,222.37.

Asian equity markets had finished mixed on Sept. 19 before news of the coup, and it's likely that the region's bourses may be subject to volatility when trading resumes on Sept. 20.

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