Three factors batter economy

Three factors batter economy.

The central bank's draconian withholding measure, the Bangkok bombings and the Foreign Business Act's amendment are three key negative factors hammering the Thai economy and overall confidence, reducing key economic indexes.

The stock market, economic growth and bank lending have all been affected by the three recent factors.

Several brokerage houses have downgraded their SET Index forecast due to the negative impacts. Asia Plus Securities last week released a report saying it expected stock index target at the end of this year to stand at 592 with a price-to-earnings (P/E) ratio of only eight, compared to the current 8.65.

On Friday, the SET Index closed at 645.71, down 13.7 per cent from December 18, when the Bank of Thailand announced its 30-per-cent reserve requirement of foreign capital.

Bualuang Securities has also revised downward its 2007 SET Index target from 800-880 points to 760 points after taking into account the central bank's 30-per cent reserve withholding requirement, the New Year's Eve bombings and the draft amendment to the Foreign Business Law.

"The new SET Index target is based on P/E ratio of 8.5. We think that the stock market will recover in the second half of this year," said Bualuang vice president Pongrat Ratanatavanananda.

Kitti Hamnilrat, senior vice president of Ayudhya Securities, said it had lowered its SET Index target for this year from 724-850 to 580-724 and expected listed firms' earnings to grow by 6.8 per cent. He recommended investors wait and see as an upside gain was limited based on Ayudhya Securities' SET Index target for the first quarter at 580-652 following a strong gain over the past few days.

KGI Securities (Thailand)'s vice president for economic and strategy research, Adisak Kammool said Thai shares were expected to hover between 560 and 660 points in the first quarter of this year. The estimate was revised downward from an earlier projection of 760-660 points.

Citicorp Securities (Thailand) said it had reduced the SET Index target for this year-end from 799 to 740 due to the recent risks.

Capital Nomura Securities has cut its SET Index target this year from 884-944 to 730-766 after risks from political uncertainty and unexpected events are taken into consideration. The broker estimated that Thai shares might dip to 572 points if political sentiment remained very poor and it would dive to 500 points in the worst case scenario of the country falling into financial crisis.

The Bank of Thailand's (BOT) monetary-policy committee will evaluate the impact of the New Year's Eve bombings on the economy, particularly on private investment and tourism, in a meeting on Wednesday.

While consumers and investors express concern about the political situation, the BOT has played down the bombing's impact on the economy. Assistant governor Suchada Kirakul said the magnitude of the impact depended on whether the political crisis was prolonged, but exports, targeted by the Commerce Ministry to grow 12-13 per cent this year, will compensate a slowdown in domestic demand, it says.

The BOT will officially revise its economic forecast at the end of this month. The central bank currently estimates the economy will grow by 4.5-5.5 per cent this year. Total consumption and total investment are expected to expand by 4-5 per cent and 8-9 per cent respectively. The BOT forecasts that export value will rise 6-9 per cent.

The University of the Thai Chamber of Commerce earlier said the economic growth this year might be only 3 per cent, dampened by the BOT's 30-per-cent capital withholding, the Foreign Business Act, the bombing incidents and an estimated appreciation of the baht at 35-35.50 to the dollar. The economy could grow by as much as 5.4 per cent if the baht is in the range of 37-37.5 to the dollar and consumer confidence improves after a month without further bombings, it says.

With expected lower growth in gross domestic product, some banks see their loan growth falling too.

TMB Bank, the country's fifth largest, will reconsider its earlier forecast of both Thailand's GDP growth and bank lending growth this year. The revision is mainly due to several risk factors, in particular the amendment of the Foreign Business Act and the Bangkok bombings.

The bank will lower GDP growth rate to 3-3.5 per cent from an earlier projected 4 per cent, while its total loan expansion will be reduced to 6-7 per cent from 9-10 per cent for this full year.

Other large banks, however, have maintained their business targets for this year, though the country's investment sentiment has been affected. They report that economic fundamentals are still strong enough and will further support the banks' loan expansion this year.

Siam Commercial Bank, the country's third largest, still maintains the country's GDP growth rate at around 4-5 per cent, and its total loans are expected to grow more than 10 per cent in 2007.

Kasikornbank maintains its economic growth projection at 4-5 per cent this year.

The Nation
Mon, January 15, 2007