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The SET bounced off the 52-week low of 1,228.18 on Friday, after China’s securities regulator scrapped its automatic stock-trading halt policy and the People’s Bank of China (PBoC) began intervening to keep the renminbi from falling further. These actions came after China's CSI 300 stock index, which tracks 300 stocks on the Shanghai and Shenzhen stock exchanges, was halted again on Thursday after falling more than 7% and tripped circuit breakers, and the yuan daily reference rate fell to a five-year low of 6.5956 yuan per dollar while the spread between the onshore (CNY) and offshore yuan (CNH) spot surged as high as 19 basis points.
The widening spread between the onshore and offshore yuan triggers capital outflows, meaning sell or short the yuan denominated assets and rotate into dollar assets, or safe-haven currencies such as the Japanese yen. According to Reuters, the PBoC had temporarily suspended at least three foreign banks last week from conducting some of their foreign exchange (FX) business until the end of March. The restriction, primarily banning the settlement of yuan-related transactions of offshore clients in the domestic market, was supposed to curb the widening spread between the onshore and offshore exchange rates of the yuan.
Earlier in the week, the SET shrugged off the headline news that North Korea said they conducted a hydrogen bomb test 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 26.53% to 144 baht a share on Friday, while Total Access Communication [SET:DTAC] is down 28.65% to 30.5 baht a share. True Corporation [SET:TRUE] and Jasmine International [SET:JAS] won the auction bids but have seen their shares nosedive 17.81% and 34.78%, to trade under 10 baht a share at 6 and 3 baht, respectively. The total loss in market capitalization of the four companies that participated in the bidding war is 216.89 billion baht so far, or about 1.83% of the SET market capitalization. During the same period, the SET is down 2.57%.
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. China’s weak manufacturing PMI data could spell trouble for Thailand exports, as China is Thailand's second-largest market after the U.S., accounting for 11.1% of total exports for January-November 2015, according to the Commerce Ministry of Thailand.
In response to the PMI data, the 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 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 36.38 baht per dollar on Friday, up 0.97% since the beginning of the year, while
CNY/THB slid 1.08% to close at 5.507 baht per yuan. The Thai 10-year bonds were yielding at 2.63% at the close on Friday, up 4.37% for the year. The yield spread between the Thailand 10-year bond and U.S. 10-year Treasury Note, yielding at 2.116% on Friday, widened to 0.514 percentage points.
For the week, the SET closed down 3.4%, at 1,244.18 on Friday. PTT PCL
[SET:PTT] and PTT Exploration and Production PCL [SET:PTTEP] took a nosedive of 11.89% and 12.23%, respectively, or about 0.93% of the SET market capitalization, as the energy stocks trade along with the spot WTI crude price, which was down 11.3% for the week, at $32.88 per barrel on Friday.
According to Reuters, Richmond Federal Reserve President Jeffrey Lacker said in a speech on Thursday that the Federal Reserve may need to raise interest rates more than four times this year if oil prices stabilize, the dollar stops appreciating and inflation surges toward the U.S. central bank's goal of 2%.
Aggressive rate hike talks by Fed policy makers could send the crude price to levels below $30 per barrel, as such talks will impact the U.S. dollar and crude oil prices. A potential price war between Saudi Arabia and Iran, after Saudi Arabia cut diplomatic ties with Iran on Sunday, may be on the horizon and put downward pressure on the crude prices.
Technically, the SET continues to trade in bear market territory, below the 1,295.82 level, at the bottom of the downtrend channel. The shooting star chart pattern was confirmed as the neckline support, at 1,280.63, has been broken. The index is moving in the bullish
descending (DES) wedge chart pattern, meaning it could bounce. There is more downside risk though, as concerns over some U.S. Federal Reserve officials talking about aggressive rate hikes, China’s stock markets, and further yuan devaluation by the People’s Bank of China
(PBoC) remain.
The U.S. Department of Labor said on Friday that nonfarm payrolls for December came in at 292,000, exceeding economists’ expectations of 200,000. The better-than-expected jobs report raises the probability of a rate hike at the Fed’s FOMC meeting on April 27 to over 50%, according to data from the CME Group.
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