SET bounces back as fears of FBA ease : Policymakers give foreigners pause

SET bounces back as fears of FBA ease : Policymakers give foreigners pause.

NUNTAWUN POLKUAMDEE & KRISSANA PARNSOONTHORN

Thai stocks rebounded 2.47% yesterday on eased investor concerns about changes to the Foreign Business Act.

The Stock Exchange of Thailand index closed at 637.63, up 15.36 points, on trade worth 21.58 billion baht. Bank shares rose 3.84%, while energy stocks gained 3.07% and property ended up 2.26%.

Foreign investors, who were net sellers of 1.4 billion baht worth of securities on Wednesday, were net buyers of 2.05 billion worth of stock yesterday. Retail investors were net sellers of 2.19 billion baht, and local institutions were net buyers of 135.7 million.

Analysts said clarifications by policymakers about the impact of the FBA reforms helped spur the rebound.

On Tuesday, cabinet ministers approved measures to tighten the definition of foreign companies to include nominee shareholdings and firms with foreigners holding a majority of voting rights.

Companies will have one to two years to restructure their operations and reduce their foreign shareholdings or voting rights to a minority.

Authorities also made minor changes to the so-called List 3 of the FBA.

The SET dropped 17 points on Tuesday after the reforms were announced, amid fears that thousands of foreign companies would be affected by the legal changes.

But M.R. Pridiyathorn Devakula, the finance minister and deputy prime minister, said on Wednesday that only 1,337 companies overall would be affected, of which just 15 were listed on the SET. The government was also open to recommendations from foreign chambers of commerce to extend the transition period for companies to restructure their holdings.

Ronnakrit Sarinwong, a vice-president at Adkinson Securities, said the easing of concerns about the impact of the FBA reforms was the main factor driving the market.

''Foreign investors focused on blue-chip stocks in the banking and energy sectors,'' he said.

''But political pressures and security concerns will continue to weigh on market sentiment.''

Mr Ronnakrit said investors should take a broader perspective on the government's policies.

''One should consider that the various policy measures is the government's way of restructuring and imposing order on the market. It will benefit the country in the long term,'' he said.

Threeranat Rugimethapass, a senior vice-president at Tisco Asset Management, said the market remained volatile on ''investor fears of additional measures'' that would affect sentiment.

''But personally, I don't see the market getting much worse,'' he added.

Current valuations at just eight times earnings represented a strong bargain compared with the average 15 times price-to-earnings ratio for other Asian markets.

Mr Threeranat said earnings growth of 8% and dividend yields of 5.3% also offered good opportunities for long-term investors.

But foreign investors remain sceptical about the Thai market, which over the past several months has endured a series of shocks starting with the Sept 19 coup, the Dec 18 capital controls, the New Year's Eve bombings and the overall economic policy of the government.

One US-based fund manager said the uncertainties over Thai government policy were causing investor confusion and hurting the Thai market.

''It may be understandable that the government is thinking of what is best for the country, but flip-flopping all over the place is not good and that they should stop doing it,'' he said.

''We are not investing [more] in Thailand, as we already have a decent exposure there. It's the fear of entering the wrong time is what is keeping us away. We do not want to invest and then find out more restrictive policies which could lead to further decline in the value.''

While valuations for the Thai market have fallen to relatively attractive levels and economic fundamentals remain sound, the policy risks were a major disincentive for investors, he said.

''I think this is a temporary phase. But international funds have to be stringent in how we invest. If a country places too many restrictions [on investment], we just stay away,'' the manager said.

Bangkok Post
Friday January 12, 2007