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The SET took a 1.79% nosedive on Monday to close at 1,352.13 on concerns about China’s corporate profits. The China National Bureau of Statistics
(NBS) said that the profits of industrial companies dropped 8.8% in August from a year earlier, the biggest one year fall since beginning monitoring the data in 2011. Actually, we have never heard of this particular NBS data before.
It could be just an excuse to take the market down as technically, the SET had a symmetrical triangle chart pattern breakdown event on Monday. Regardless, it wasn’t a good end-of-the-month/quarter window dressing when mutual funds add or trim their positions before sending out performance reports and a list of its holdings.
The SET closed at 1,346.35 on Friday, down 2.21% for the week. Trading volume was light as the Shanghai stock exchange is closed from October 1 to 7 due to China's Golden Week, a week-long national holiday. Traders might also have wanted to stay on the sidelines ahead of Friday's U.S. nonfarm payrolls report.
The nonfarm payrolls report released by the U.S. Labor Department on Friday was a disaster as it showed that just 142,000 jobs were added to the economy in September. The jobs report came in well below Wall Street economists' expectations of 203,000, missing expectations for four straight months. The August figures were also revised sharply downward from 174,000 to 136,000, far worse than the original forecast of 222,000. If the 136,000 jobs for August were reported a month ago, there would not have been a debate about a rate hike.
The U.S. unemployment rate remained at 5.1%, the lowest since early 2008, as more than 350,000 people left the labor force in September, pushing the labor force participation rate to a 38-year low of 62.4%, meaning 94.6 million Americans, 16 years and older, did not have a job and were not actively trying to find one.
The federal funds futures, commonly used to estimate the market’s views on the likelihood of changes in U.S. monetary policy, indicate just 5% odds for a quarter-point rate hike at the October 28 policy meeting, while the odds for a rate hike at the December 16 meeting have dropped to 30% from 41% registered on September 30, according to data from CME Group as of October 2.
The USD/THB exchange rate printed at 36.424 baht per dollar on Friday at the close, a more-than-eight-year high, up 0.7% for the week, while the Thailand 10-year Government bond yield dropped 1.77% for the week to close at 2.77%. The year-to-date foreign investors’ net sells top 107.2 billion baht, up about 400% from the same period last year. The foreign investor’s net sells in the third quarter was a record 91.9 billion baht. During the same period, the SET took a 10.34% nosedive as the USD/THB surged 7.6%.
The Institute for International Finance, a group representing more than 500 of the world’s biggest banks, hedge funds, insurers and other financial firms, told The Wall Street Journal on Thursday that emerging markets will experience net outflows of $541 billion in 2015, the first year in nearly three decades that more money has left developing markets than has entered them.
Investors are concerned about China's economic hard landing and the ability of emerging market countries to jump-start their economies. There might not be a quick fix for the SET, as the Thai baht continues to depreciate and capital outflows hit the market. One needs to be aware that a weak currency might help exports, but a country with a weak currency usually has poor economic fundamentals.
Technically, we had a symmetrical triangle chart pattern breakdown event on Monday which took the SET down 1.79%. A trend reversal for the SET on Tuesday was followed by a lousy bounce on Wednesday. The index is bouncing along the bottom trendline support of the symmetrical triangle and downside risk has significantly increased, as the SET could drop further to retest the 1,310 level.
The SET might get a temporary bounce, but there is no guarantee, as the iShares MSCI Thailand Capped ETF, traded on the New York Stock Exchange, was up 2.42% on Friday along with the U.S. broader markets. The Shanghai stock exchange will be closed until Thursday so the up/down volume could be light until China’s market opens again. |
