Chart, thai stock exchange : 5 years wiped out

Here is the chart of the SET Index (left scale), with net foreign trading volume in millions THB (net = buy – sell, right scale)

Today the SET is at 450 points. Back to may 2003 !

So much for the “insulation” and the “decoupling” theory…

The thai Stock Exchange is a very special market : a handfull of thais insiders playing with each others… a few local institutions… and foreign players…

The foreigners are getting out (albeit this trend is not new).

And this is only the beginning : the real economy is slowly and quietly being contaminated by the financial crisis… Exports are still holding up… So the SET at 450 points today… And in 6 months ?

Okay the situation is roughly the same on the markets all over the world… But in Thailand we have also a political crisis…

By the way, all the asian markets are taking a big hit today (and the previous days)… And something very important is happening : the Yen climbs at a 13 years high against the USD… This is a potential atomic bomb : it’s the unwinding of the yen carry trade...

For years the Japanese have flooded the world with cheap money… Yen were borrowed at virtually zero interest rates… Then converted into high yield currencies (like AUD or NZD)… In just 2 faxes out (buy-sell), people were making fortunes in a zero risk bet

Too good to be true… Or too good to last.

But now the party is over : panic is leading people to payback their debts in Yen… Therefore they are buying Yen… Supply and demand… Therefore the Yen is gaining value.

The more they wait, the more the Yen is gaining value, the more they can be wiped out by the exchange rate…

it’s a self reinforcing mechanism that could be really devastating (because of the huge amounts involved).

(Source SET).

18 Responses to “Chart, thai stock exchange : 5 years wiped out”


  1. 1 Bob 24 October 2008 at 7:53 am

    Excelent comment about the Yen Carry trade. Would you agree that at least some of the selling in US and European stocks could be to pay back yen denominated loans?
    In other words, it is fair to assume that US stocks are getting liquidated and over sold to cover yen loans?

  2. 2 Bob 24 October 2008 at 8:01 am

    You got the scale switch (left/right) with the text in the text box.

  3. 3 ThaiCrisis 24 October 2008 at 8:32 am

    Indeed, but I was too lazy to redo the chart.
    πŸ˜‰

    As for the Yen… I think the deleveraging process is so powerful that they (hedge funds) are selling everything, and would be ready to sell even their mother, father, children.
    πŸ˜‰

    In such circumstances, to call for a “bottom” or to say that the valuation of some companies is “insanely low”… doesn’t make any sense.

    The credit fontaine is over. Therefore some investors, facing big positions, have to raise cash. By selling everything they can. While they can.

    US stocks certainly. But european too. Asian. All the stocks actually !

    When this powerful deflation process will be over, then we will have our bottom. πŸ˜‰

    Mike Shedlock is the perfect read for the “bubbles bust” and “deflation”. This guy is right with all his calls since 2006.
    http://globaleconomicanalysis.blogspot.com/

    He’s more technical than Roubini I think.

    This is why we can’t say that the current situation is a surprise… Some people knew and warned us long time ago. By just using common sense and some knowledge.

  4. 4 Bob 24 October 2008 at 9:04 am

    Thanks TC,
    I will watch the US market today and dip my feets into the water. Some stocks just looks like a lot of value for money at the moment.
    Bob

  5. 5 ThaiCrisis 24 October 2008 at 9:12 am

    For sure we are going to have an interesting day… Europe is hammered right now, after asia…

    Of course it’s difficult to resist… indeed, some valuations seem to be low… but again we are not currently in a normal process…

    But… regarding which comparison point ? The highs of mid 2007 ? That’s the trap.

    the deleveraging process is not over… So many years of credit orgy… can’t be settled in a few months… And confidence is deeply broken.

    We are going to have some powerful rebounds… like we already had… but rebounds to nowhere. Lala-rebounds. πŸ˜‰

    I think the only wise thing to do is to wait. Keep your amunitions for later, when the fog of war will be dissipated (eventhough you might loose a few %).

  6. 6 L Prao 24 October 2008 at 9:28 am

    The deleveraging I believe still has a long way to go. But I am surprised that the US dollar had become the default safe haven for fleeing scarred investors. With the trillions of dollars being thrown by the US government at the financial crisis, and, with the huge carry-over megatons of dollars still flooding the globe as countries official foreign exchange reserves, I would have thought that the US dollar is the one fiat currency that deserve to used as toilet paper.

    My question really is at any time now the world will realize that the US dollar should be worth shit and the need an alternative world currency for use as trade. Which currency will that be and what happens when the world truly abandons the US dollar? The end of the world?

  7. 7 chinesethai 24 October 2008 at 12:30 pm

    ThaiCrisis:

    I agree with you. You know what, this piece of news might go unreported in Thailand’s English language newspapers. A quite large number of Thais, from rich to poor, may have made big losses in gold investment since the demise of Lehman Bros and the situation changed. Yesterday I witnessed a big crowd stuffed inside a famous gold shop in a shopping mall. Gosh, they thought the gold price was cheap. The next day it keeps falling.

    L Prao:

    I believe every party wants a landing for the dollar but it must be a very nicely soft one.

    America doesn’t want a super inflation tsunami now, so does Europe.

    China, Japan and Asia don’t want to see an abrupt deterioration in their FX reserves. Especially China needs years to develop its domestic market in order to build cushion against external shock like it is facing.

    That’s probably why Paulson recently thanked China for big help by propping up the dollar while Sarkozy proposes a formal Bretton Woods II. Bush finally has come to realization of China, as well as other big developing countries, as emerging world powers.

  8. 8 fdl 24 October 2008 at 12:54 pm

    The world to abandon the US dollar? And use what . . the Chinese Yuan, the Japanese Yen? But I can agree that the US dollar would be due for wild ride one way downwards because of loss in faith in the US economy, loss in faith the US financial system, loss in faith in the US dollar and and loss in faith in capitalism. Gold price will soar when all world fiat currencies suddenly become dubious in value.

  9. 9 Mr Undercover 24 October 2008 at 7:44 pm

    Thanks for the post !! What I don’t understand is why the Thai Bath so high with the WW financial crisis & and their local political mess going on? Any forecast regarding the Thai currency?

    Merci πŸ™‚

  10. 10 L Prao 25 October 2008 at 3:14 am

    An expert’s forecast these days is as valuable as Lehman’s stock – nada! or nothing. For ghoul humor about the ongoing financial crisis, however, I suggest people take a look at Mogambo Guru website:

    (http://www.dailyreckoning.com/Writers/MogamboGuru.html)

    Very educational and very very funny.

  11. 11 ThaiCrisis 25 October 2008 at 4:19 am

    I’ve got a theory.

    First, we need to understand that each currency can be affected by a set of factors, totally different one from another.

    A few example :
    -the Yen is going to the moon versus USD and EUR because it’s the end of carry trade (people pays back their debts in Yen, they need yen)

    -the AUD and NZD are hammered because they were high yield currencies. People are getting out of those bets

    -the USD is going up versus many currencies, not because of love, but because hedge funds are taking back home cash, and many investors are running for “fly to security” by buying US treasuries. All this increases the demand for USD. Mechanically. And very ironically too. πŸ˜‰

    -the GBP is going to the toilets (sorry for our english friends), because it’s a very fragile currency, the UK economy is already in recession (-0.5 percent on Q3), the UK economy and the growth those past years were cloly linked to the real estate bubble and the financial market bubble… Remove that…. what do they have left ?

    etc.
    πŸ˜‰

    So what’s going on the THB ?

    -I think there were no big “positions”, nor speculative positions on the THB. Don’t forget the capital controls circus we had for more than one year… THB has been (in a way) out of the radar scope.
    πŸ˜‰
    Therefore, no risk of large and fast “unwinding” event (like we currently see on the Yen).

    -furthermore, the political crisis is not new. Like my chart shows, foreigners have started to leave the SET long time ago.
    Any real player knew and know that the country face huge internal challenges.

    -Therefore why taking risk on the THB when it was possible to be 100 percent winner with positions on AUD, NZD etc. ?

    -this little interest from international players for the THB makes the task today for the BOT to “control” (sorry “to manage”) the exchange rates much easier.

    -and this is precisely what they are doing, like they did (in the opposite direction) last year when the USD was falling.

    -and furthermore, there is no room (I mean much less) today for speculative attack (a speculator can attack both way, up and down)… Speculators are occupied right now at saving their arse… they don’t have time to take an interest in the THB.

    -what I try to say is that the THB is, someway,… a NON MARKET.
    No size, no interest, no future, no opportunies… A NON MARKET
    πŸ˜‰

    -that leads the THB to be insulated in a way. The thai currency is moving along, in a gently manner and quietly, versus AUD, EUR, Yen, GBP… And keeps the status quo versus the USD.

    -the BOT is happy. “stability” ( in an apparent manner)

    -will it last ? It’s impossible to know.

  12. 12 ThaiCrisis 25 October 2008 at 10:37 am

    I forgot to add : the international reserves of the BOT is going down from its highs (total 125 billions USD, reserves + forward contracts).

    I will make a chart about it next week.

    Is it the sign that the BOT is “managing” the exchange rate THB-USD, by selling some of its USD ?

  13. 13 Gloomy Observer 25 October 2008 at 2:36 pm

    I agree THB is a “non event”.

    Except that by being so, it is becoming over-valued! Just when demand in key export markets is falling fast, the THB appreciates hugely in real and nominal terms versus a swathe of export markets!! Same problem as in Japan in a way…

    I was comparing prices in some mid- to high-end places this week, and Bangkok is no longer cheap at all for many tourists! Although devaluation is a false path to prosperity, this country just does not have the long-run productivity growth to do anything other than keep the currency cheap to compete…

  14. 14 chinesethai 26 October 2008 at 4:31 am

    “Although devaluation is a false path to prosperity, this country just does not have the long-run productivity growth to do anything other than keep the currency cheap to compete…”

    Right on. And that’s why BOT is always busy defending Baht. There have not been any true effort to lift the long-run productivity growth. Ironically, Thailand has the most fertile land in Asia but its crooked politicians always cheat on Thai farmers to grow rice at the highest cost in the world. Let along falling quality of Thai education. (I have stories of the current state of Thai education to tell)

  15. 15 Hoktula 26 October 2008 at 7:25 pm

    fdl:

    “The world to abandon the US dollar? And use what . .”

    there are few versions.

    I think there will be no single main reserve currency anymore.
    which is more likely.

    like Japan has already started to trade on its stock exchange in Osaka in BRIC currencies & €. Iran sells oil in € and to Japan in Yen. Arab countries (GCC) announced introducing their own new currency. Russia said will sell in ruble.

    ASEAN might eventually establish their own Single currency similar to € (this tendency for “united” currency is in Africa and Caribbeans too); although they might as well simply develop further CMI and use it to protect their national currencies.

    from other hand, there are rumors that Bush has called G7/G20 mainly for the discussion of creating NEW world currency…
    personally I think that even if it is true – most of countries will not agree with that and try to maintain their own currencies and strengthen them (like mint golden/ silver coins instead of fiat paper money) – even IF they might participate in whatever project of “world currency”.

    but one thing is sure: whether you like it or not, $ will not be world’s ONLY reserve currency anymore. in fact, it isn’t already ! and perhaps, quite for a while: since … 2001 when Saddam has switched from petro-$ to petro-€ and because of that was eventually hanged (and Iraq made to switch back to petro-$). some say that $ will even seize to exist at all (if rumors of Amero are true). Lou Dobbs regularly talks about it on CNBC.

  16. 16 chinesethai 27 October 2008 at 9:57 am

    ThaiCrisis:

    You’d better have this post updated or post a totally new thread. Not only 5 years have been wiped out but I am even afraid of 7 years. The state of the world economy is worrisome.


  1. 1 BKK News Feed Archive - Q3/08 Trackback on 27 October 2008 at 1:34 am
  2. 2 BKK News Feed Archive - Q4/08 Trackback on 30 October 2008 at 1:42 am

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Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.


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