Euro-zone fears: Markets in tailspin

The Stock Exchange of Thailand yesterday lost as much as 9.42 per cent, which triggered a technical trading halt. In its 36-year history, the exchange’s circuit breaker has been thrown only twice before – in 2001 after the terrorist attack in the United States and in 2006 after the launch of capital controls.At yesterday’s close, the SET Index had rebounded to 904.06 points for a narrower loss of 54.10 points, or 5.65 per cent.Yesterday was the third day of dramatic tumbles on the Bangkok bourse sparked by concerns over the US and European economies, which are major markets for Thai exports. On Thursday, the Stock Exchange of Thailand Composite Index lost 3.79 per cent to 990.59 points and on Friday it lost a further 3.27 per cent to 958.16 points.The three days of losses, representing a plunge of 11.1 per cent, has wiped Bt1.02 trillion off the market’s capitalisation, bringing it down to Bt7.4 trillion.After yesterday’s panic selling of Thai stocks, the Federation of Thai Capital Market Organisations (Fetco) proposed the establishment of a Vayupak 3 Fund worth about Bt100 billion and a review of the government’s populist measures (details, page 2A).“Establishing a Vayupak Fund 3 will help to develop the capital market in the long term,” said Fetco president Paiboon Nalinthrangkurn. “The government will earn money through its reduction of holdings in state enterprises while investors will be able to buy stocks at bargain prices.Stock focuses include Thai Airways International, MCOT and PTT. The fund size could be Bt100 billion, similar to that of Vayupak 1 and 2.”Fetco is of the view that global market volatility will remain for some time, without collective action to end the cri sis and with clear signs that both the United States and Europe lack weapons to boost the economy.According to Securities Analysts’ Association secretary-general Sombat Narawutthichai, 170 Thai stocks are now trading below their fundamentals. The association is now in the process of revising its end-of-year SET Index forecast, given that euro-zone factors have become worse over the past two months. Earlier, some securities houses expected the index to end the year at 1,200 points.Fetco’s proposal for the establishment of a support fund was flatly rejected by Deputy Prime Minister Kittiratt Na-Ranong – a former president of the stock exchange. He said on the sidelines of a seminar yesterday that the government had no policy to bail out the market.He said yesterday’s Thai-market plunge looked frightening because of narrower losses on the first two days, compared with the losses of other Asian bourses. However, he said the plunge offered a good opportunity for buyers.SET president Charamporn Jotikasthira said after discussions with brokerage houses that yesterday’s market fall made the Thai bourse’s loss equal to those in Indonesia and the Philippines. In the past five days, Indonesia and the Philippines have lost 11.6 per cent and 13.6 per cent of market value respectively.He insisted that short-selling had not contributed to the tumble.Foreigners remained net sellers yesterday, with a net-sell position of Bt3.03 billion, as they left emerging markets and returned to dollar assets. So far this month, the net sells have exceeded Bt18 billion.The baht also plunged below 31 to the US dollar yesterday, to 31.17, the weakest level since January 31. Gold shed more than $100 per ounce to $1,532.72.Oil prices also fell to a seven-month low, on bets Europe’s sovereign-debt crisis would cut fuel demand. Crude for November delivery on the New York Mercantile Exchange fell as much as $2.74 to $77.11 a barrel, the lowest price since August 9, and was at $79.31 at 10.24am London time. Oil is down 13 per cent this year in New York.A senior broker at Jefferies Bache in London, Christopher Bellew – who correctly predicted Brent wouldn’t exceed $120 this summer – said that short-term panic could briefly push Brent below $100, but growth in Chinese demand was likely to prevent prices falling through the floor.World stock markets remained volatile yesterday as investors grew increasingly convinced that Greece would default on its debts – an event that economists say has the potential to worsen the global downturn.Global panic was sparked by default fears that originated from a string of bad news following the International Monetary Fund’s meeting last weekend. The Group of 20 expressed worries over the absence of a solution to ease the European debt crisis and big-time investor George Soros mentioned that the world was slipping into recession and the euro-zone debt crisis was now more severe than the US economic malaise.The most frightening news came from IMF managing director Christine Lagarde, who said the fund’s $384-billion lending chest might not be enough to meet all loan requests if the global economy worsened.According to polls released in Sunday editions of Greek newspapers To Paron and Proto Thema, most Greeks expect the country won’t be able to avoid defaulting on its public debt.Lagarde yesterday met with Greek Finance Minister Evangelos Venizelos in Washington. They discussed the terms under which the IMF mission would return to Athens to undertake a fifth review of Greece’s economic programme – most likely this coming week.To soothe markets, German Chancellor Angela Merkel said euro-region leaders must erect a firewall around Greece.Greece has yet to secure a second international bail-out amid questions about its ability to satisfy the terms for aid. Venizelos this month announced a raft of new measures including pension and wage cuts as well as a sweeping property tax to ensure the nation meets 2011 targets to qualify for a sixth loan payment in October under its first May 2010 financing package.Transport came to a standstill in the Greek capital yesterday as unions staged the latest series of 24-hour strikes against the government’s austerity drive, leading to long queues on the streets of Athens as commuters drove to work, according to Deutsche Presse-Agentur.