The greatest plunge in 16 years, worse than the July 1997's fall of the tiger economies of SE Asia, happened today as a reaction to clampdown on
speculation in the Thai currency. Yesterday Bank of Thailand's announced new rules for foreign investments. Requirements of keeping 30% of foreign
currency bound on non-interest paying accounts for at least one year was introduced, an action that send the stock market in panic as it opened this
morning. Allegedly the measures were taken to stop the Thai baht's rise against the dollar. The baht was yesterday traded at a nine-year high of
35.11 to the dollar. Before the collapse of 97 it was 60 to 70 to the dollar and in recent years it has been around 40. The baht is tied up to the
dollar and has gained nearly 15% against it since January, which only goes to show how much the dollar has weakened.
Thailand's SET Index sank 108.41, or 15 percent, to 622.14, its lowest since Oct. 29, 2004, as the lockup took effect today. Shares of PTT Pcl and
Bangkok Bank Pcl led benchmark's steepest slide since Aug. 7, 1990.
International investors today sold 25.1 billion baht ($699 million) more Thai stocks than they bought, their largest net sales since at least Jan. 4,
1999, according to data compiled by Bloomberg.
Government bonds slumped, pushing the yield on the 10-year note up 0.332 percentage point to 5.203 percent. The baht lost as much as 1.5 percent to
36.08, and recently traded at 35.88.
Benchmarks fell in India, Malaysia, Indonesia, the Philippines, Pakistan, Poland and Turkey as the currency controls heightened concern about
investing in emerging markets. Thailand in 1997 triggered currency collapses in South Korea and Indonesia, leaving much of Asia in a financial crisis
that required an international bailout.
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I'm not an economist, but I think this is an attempt to prevent over-heating of the economy, which after a 7 month deadlock of politic turmoil
brought by the ousted Thaksin administration, suddenly saw the light again with the junta restoring order. But it seems to me an odd measure to
inhibit the influx of capital by only allowing 70% to be spend immediately.
Anyway it worked, the baht lost 3% to the dollar, which I suspect to be the real problem here. Dollar going down means baht goes up, a problem for an
exporting economy in competition with the Chinese yuan. Unfortunately the cure highlights the risks of investing in developing economies.
The side effect on the stock market doesn't seem to have been foreseen either, and with the chaos it has created the jackals are attracted, thus
bringing all parameters in place for another meltdown of SE Asian economies. The crack of 1997 was caused by speculations in the currency and these
measures are said to be exactly against that.
Just in time for NY stock exchange to
open, it has been announced the controls imposed will be lifted. The 30% will be dropped, reporters were told by the president of Thailand's stock
exchange after meeting with Finance Ministry and Bank of Thailand officials. So WHAT is it really about?
This has to do with the yuan and the dollar, but how? That the hysterical bitches of the stock market are panicking is obvious.
What is the real agenda behind this? A meltdown for Christmas? Please come forward with your thoughts.
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[edit on 19/12/2006 by Mirthful Me]
[edit on 19-12-2006 by UM_Gazz]