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Weak companies drive down SET


THE chief of the Securities and Exchange Commission yesterday said he had found no evidence of index option trading linked to the recent heavy selling of Thai stocks and that the selling took place largely because of the fundamental weakness of Thai companies.

"We've traced the trading of index options in the Singapore market over the past two months and there is almost no activity at all," said Prasarn Trairatvorakul. "I don't want to blame any parties for selling Thai stocks because we have to admit that we really have fundamental problems, which must be resolved."

Yesterday, the Stock Exchange of Thailand (SET) staged a technical rebound, rising 2.54 points to 408.35, after a heavy slide over the past month. On Thursday, the SET index shed more than 4 per cent, marking yet another pullout of foreign investors from the Thai market.

During Feb 1-17, foreign investors became net sellers of Thai stocks, according to the commission. Their net sales totalled Bt6.4 billion. Local institutional investors' net selling totalled Bt1.7 billion. Retail investors were net buyers to the tune of Bt8.1 billion.

The SET index lost 14 per cent during the cited period, reflecting the fundamental weakness in the size of the Thai market - it can be easily swayed by a couple of billion baht.

The sharp fall of the SET was not due to any attempt to manipulate the market because the selling was spread widely across the board, Prasarn said.

During Feb 1-17, bank stocks lost 17 per cent, construction materials stocks lost 22 per cent, communications stocks lost 19 per cent, finance stocks lost 25.8 per cent and energy stocks lost 19 per cent, according to the commission.

The selling of Thai stocks followed a reduction of the weighting of foreign institutional investors in the Thai stock market as advised by the Morgan Stanley Capital International (MSCI) index, which provides recommendations on portfolio weightings in emerging markets.

Recently, the influential index advised institutional investors to reduce their weighting in the Thai market from 5 per cent to 4 per cent and suggested that they increase their weightings in the Malaysian, Taiwanese and Korean markets. Consequently, passive institutional investors reduced their portfolio investments in Thailand.

"I believe that 80-90 per cent of the net selling by foreign investors, which amounted to almost Bt10 billion, was due to a change in the weighting of portfolio investment as recommended by the MSCI index," said Sathit Wannasilapin, a research manager at Capital Nomura Securities Co.

Thai stocks will not fall below the present level because the portfolio adjustment is nearly completed, he said.

Another major factor destabilising the Thai market is the failure of the creditors and the owner of Thai Petrochemical Industry (TPI) Plc to reach a corporate debt-restructuring agreement. Foreign investors have been very disappointed that a precedent-setting deal has not been struck.

"Clients would like to see the right thing done with the TPI situation. It has to be resolved. There must be some tough and hard action," said the representative of a foreign investment bank in Bangkok.

Anusorn Tamajai, an economist at Citibank Bangkok, said that the sharp plunge of the SET was a short-term phenomenon because foreign investors completed their objective of dumping Thai shares a couple of days ago.

Foreign investors had dumped Thai shares and shifted their money out of the local stock market to wait for the right time to buy the stocks they sold at cheaper prices, he said.

"This is a profit-taking mission as you can see that only a small amount of offshore capital flowed out of the country in recent days. What they did was sell shares and move out of the market. I believe they will be back soon," Anusorn said.





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