Thai Stocks Lose Link to Asia as Economy Slows: Chart of the Day

The six-month political crisis in Thailand that led the Army to impose martial law is severing the Bangkok stock market’s ties with the rest of Asia.

The CHART OF THE DAY shows that swings in Thailand’s SET Index have the lowest correlation now to moves in the FTSE/Asean 40 Index, a Southeast Asia equity benchmark gauge, since 2007.

Thailand has been without a fully functioning government since December when then-premier Yingluck Shinawatra called snap elections in a bid to ease political unrest before a judge removed her from office on May 7 for abuse of power. The turmoil has put the economy on the brink of recession, pushing the SET Index down 7.4 percent in dollar terms since anti-government protests began at the end of October. The FTSE/Asean 40 index is little changed over that time, slipping 0.1 percent.

“Prolonged political instability has scared international funds from any additional investments in Thai equities,” said Supongvorn Mianpoka, a senior vice president at Asset Plus Fund Management Co., which has about $861 million of assets. “Thai equities will continue to receive discount valuations to their regional peers because of political risk.”

The 120-day correlation coefficient between the two indexes, a measure of the degree to which their movements are linked, has dropped to 0.49 from about 0.83 in late October. It reached as low as 0.46 last week, a level that hadn’t been touched since 2007, data compiled by Bloomberg show. A coefficient of 1 means two assets move in lockstep, with 0 meaning no relationship.

The declaration of martial law yesterday is the army’s most direct involvement in the Southeast Asian nation’s politics since 2006, when then-premier Thaksin Shinawatra, the brother of Yingluck, was removed in a coup. Political polarization has escalated in the past decade over the role of Thaksin and his allies in a nation that’s seen 11 coups since the end of direct rule by kings in 1932.

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