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The SET shrugged off the headline news that North Korea said they conducted a hydrogen bomb test and closed up 0.53%, to 1,260.04 on Wednesday, as the Telecommunication services sector bounced. The telecom sector has been hit hard since the auction by the National Broadcasting and Telecommunications Commission (NBTC) of Thailand for the 4G 900 MHz spectrum licenses, which in our opinion, has resulted in no 4G winners but an increase in the risk for a price war.
Since December 15, when the NBTC started its auction, shares of Advanced Info Service PCL [SET:ADVANC] have tumbled 29.85% to 137.50 baht a share, and Total Access Communication [SET:DTAC] is down 29.24% to 30.25 baht a share. True Corporation [SET:TRUE] and Jasmine International [SET:JAS] won the auction bids but have seen their shares nosedive 15.07% and 31.74%, to trade under 10 baht a share at 6.20 and 3.14 baht, respectively. The total loss in market capitalization of the four companies that participated in the bidding war is 230.26 billion baht so far, or about 1.86% of the SET market capitalization. During the same period, the SET is down 1.33%.
On Monday, Beijing-based Caixin Media Company Ltd. released its Caixin/Markit manufacturing purchasing managers index (PMI), that came in at 48.2 for December, down from 48.6 in November. Any reading below 50 signals a contraction in business activity. The manufacturing PMI slipped below 50 for the 10th straight month and missed economists' expectations of 48.9.
In response, the People’s Bank of China (PBoC) set Monday's daily reference at 6.5032 yuan to the dollar, the weakest since May 2011, according to the PBoC’s China Foreign Exchange Trade System. The offshore yuan (CNH) traded in Hong Kong, fell 1% to a five-year low of 6.6348. The spread between the onshore (CNY) and offshore yuan spot surged as high as 13 basis points, which might also have triggered capital outflows, meaning sell or short the yuan denominated assets and rotate into dollar assets, or safe-haven currencies such as the Japanese yen.
The weak China manufacturing PMI figure and yuan devaluation prompted investors to dump shares on the Chinese equities markets, which resulted in a steep dive of the Shanghai Composite Index that triggered circuit breakers to close the index down 6.9% at 3,296.66, its lowest level in nearly three months. The drop led the Shanghai and Shenzhen stock markets to halt trading for the remainder of Monday to avert steeper falls, according to the official Xinhua News Agency. The SET took a cue from the Chinese markets and tanked 2.69% on Monday and Tuesday.
The Commerce Ministry of Thailand said on Monday that the consumer price index (CPI) slid 0.9% year-over-year in December, slightly more than the 0.8% drop expected by economists. Core inflation, which excludes volatile food and energy prices, rose 0.68% in December from a year ago, missing a median forecast by the MarketWatch poll of economists of 0.75%. The inflation news may not seem to matter much as Barclays, in a research note in late December, believes the Bank of Thailand is likely to keep rates unchanged through 2016, with a bias for a weaker exchange rate.
The USD/THB exchange rate was quoted at 36.208 baht per dollar on Wednesday, down 0.45% since the beginning of the year. The Thai 10-year bonds were yielding at 2.66% at the close on Wednesday, up 5.56% since Friday. The yield spread between the Thailand 10-year bond and U.S. 10-year Treasury Note, yielding at 2.17% on Thursday, widened to 0.49 percentage points.
Technically, the SET continues to trade in bear market territory, below the 1,295.82 level. There could now be more downside risk, as the neckline support, at 1,280.63, of the shooting star chart pattern has been broken, meaning the chart pattern is confirmed. The WTI crude oil price tumbled 6% on Wednesday, to close at $33.97, so the energy sector could be the next thing to drag the SET down to a new 52-week low.
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