|
The SET managed to break out the 1,370-1,380 trading range and closed at 1,381.82 on Friday, up 0.8% for the week after the government of Thailand approved a second stimulus package on Tuesday. The second stimulus package, which is worth about 106 billion baht, provides small and medium-sized enterprises (SMEs) with soft loans, tax cuts and tax exemptions for start-ups, plus a 100 billion baht credit guarantee and a 6 billion baht venture capital fund. Two stimulus packages have been approved so far, worth a total of 342 billion baht, or about 2.62% of Thailand's 2014 GDP.
The USD/THB exchange rate surged on Thursday to a multi-year high of 36.27 baht per dollar, as the Thai government ramped up spending. The currency pair broke out the 33.1 baht per dollar level at the end of April, after the Bank of Thailand announced measures to encourage more capital outflows including raising purchases of foreign currencies for deposit by Thai citizens, from U.S. $500,000 to U.S. $5 million, and raising the value of properties that a Thai citizen can purchase abroad, from U.S. $10 million to U.S. $50 million per year.
Since then, the Thai baht has depreciated about 9% against the U.S. dollar and the Thailand SET index has nosedived around 10%, as foreign investors are exiting the Thai stock market.
The foreign investors’ selling seems to have subsided, with net sells so far this month of about 7.25 billion baht. The year-to-date foreign investors’ net sells top 93.6 billion baht, up almost 2,400% from the same period last year. Proprietary trading, or “prop trading”, by the investment banks was very active on Friday with net sells of 1.2 billion baht but no red flags were raised as it could just be profit taking. Since it hit the 1,282.14 low in August, the SET has run up almost 10% to Friday’s intraday high.
Part of Friday's sell-off for the SET could have been due to Goldman Sachs’ Friday morning comments on the WTI crude oil price, as the firm cut their price target to as low as U.S. $38 a barrel and said the risk that oil could fall to $20 a barrel is rising.
The SET got some support earlier in the week as there was speculation that the People’s Bank of China (PBoC) was considering additional stimulus and cuts to the reserve requirement ratio (RRR), currently 18% for major banks, as China’s trade data came in on Tuesday worse than expected. On Friday, the PBoC rolled out a more flexible RRR policy that effective on Tuesday, banks can let the reserves they keep at the central bank fall one percentage point below the required government level on a daily basis.
The University of the Thai Chamber of Commerce said on Thursday that it revised Thai gross domestic product (GDP) to 3.1% this year, from the previous forecast of between 2.5-2.9%. Last week, The University said the stimulus approved by the Thai government could boost economic growth by 0.7-1.0 percentage point this year.
Technically, the SET broke out the trendline resistance of the descending wedge, but is stuck at the 1,401 resistance level. The ascending wedge and bearish engulfing chart patterns have now emerged. The bearish engulfing pattern consists of one white candlestick, followed by the second black candlestick. The bearish engulfing pattern is confirmed if the SET pulls back below the lower trendline resistance of the ascending wedge pattern.
The fact that two stimulus packages from the Thai government have been approved, the SET should be able to push through the 1,401 level and retest the 50-day SMA in the next few days.
The headline risk is the U.S. Federal Reserve meeting on September 16-17. Wall Street is completely frustrated with the Federal Reserve rate hike drama. It looks like no one wants the Federal Reserve to destabilize the global financial markets at this point. The World Bank came out earlier this week and warned the Federal Reserve that they are risking "panic and turmoil" in the emerging markets if they raise interest rates on September 17.
According to the latest poll by Reuters, 10 of 17 primary dealers, or the banks that directly deal with the Federal Reserve, now say they expect the Federal Reserve to raise rates in the fourth quarter of 2015 or later. |
