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The SET closed at 1,466.64 on Monday, down 0.85%, as the USD/THB exchange rate hit another fresh multi-year and intraday high of 34.49 baht per dollar and quoted at 34.451 baht per dollar, as of 18:41:45 GMT on Monday. Technically, all bets are off as the 1,469.11, or the 61.8% Fibonacci retracement level, has now been broken. The SET is now in correction territory, as it dropped more than 10%, 10.44% to be exact, from the recent peak of 1,619.77. In the event that a long-term falling wedge breakdown is confirmed, the supports are at 1,375.99, 1,307 and 1,164.74, or the 38.2% Fibonacci retracement level. There could be stop-loss selling along the way between the support levels.
The depreciation of Thai Baht against all major currencies including USD, EUR, CNY, JPY and AUD on Monday, could in part be due to comments by Bank of Thailand (BOT) Governor Prasarn Triratvorakul that the BOT has no target for the Thai baht, but is pleased to see that it has weakened since April and is moving more in line with regional currencies.
Since April 22, the USD/THB has surged 6.4% to date, while the SET has slid, coincidently, almost the same amount of 6.54%, or close to 1 trillion baht in market capitalization loss. Since there is no such thing as coincidence in the financial markets, the strong correlation between the USD/THB and SET suggests capital outflows from the financial markets, as a result from the weakening baht.
The fact that the equity market is forward-looking and has traditionally been viewed as an indicator of the economy, a large pullback in the SET could be reflective of a future recession, or vice-versa. Historically, most recessions are accompanied by stock market declines of 30% or more, meaning levels below 1,133.84. As the SET continues to slide downward while the Thai baht continues to weaken, the market may be signaling a further downturn of the economy is ahead for Thailand. |
