Govt Warned to Brace for Recession Threat as Funds Flee Markets

15.42 points drop... not a good sign for SET

Funds exited Thailand’s stock and bond markets yesterday (August 15), as the Stock Exchange of Thailand (SET) Index dropped 0.95 % over the previous day and the market closed at 1,604.43, down 15.42 points.

Trade volume was high, reaching 100 Billion Baht on a single day. Foreign investors made net share sales worth 11.9 Billion Baht on Thursday, aggregating sales of Bt35.4 billion between August 1 and 15. However, their net buy was 25.3 Billion Baht from January 1 to August 15.

Foreign investors also sold government bonds worth 4.5 Billion Baht on Thursday, aggregating net sales of 1.4 Billion Baht since early this month and net sales of 23 Billion Baht year-to-date. Foreign investors sold both long-term and short-term bonds worth 2.6 Billion and 1.8 Billion Baht respectively.

The Thai government has limited choice to handle an economic slowdown, he said. It is because Thai households suffer from high debt. Private investors may not want to invest more due to the unfavourable global economy. The government has also previously spent a lot of tax money, he said.

Sompop Manarungsan, president of the Panyapiwat Institute of Management, also voiced concerns about the threat of recession. The bond yield inversion is a credible signal of a looming recession.

Currently there are massive amounts of bonds with negative yields worldwide, estimated at US$15 Trillion or 25 % of total value of bonds estimated at $60 Trillion globally, he said.

Sompop said the Bank of Thailand should not cut its policy rate again despite the clamour of exporters after the previous 0.25 percentage point cut. He said a rate cut would not help as the export sector was adversely impacted by the slowing global economy, not just a strong Baht, he said.

Thailand’s exports are expected to contract this year.

He suggested that the government speed up public investment such as the double-rail project, the high-speed rail and other projects in the Eastern Economic Corridor. Public investment would counter the negative impact of the global recession should it happen, he added.

Source: The Nation