Thai markets barely avoided a 12th consecutive day of losses Monday as the country's worsening political crisis provokes what has become a record-setting rout in shares and the national currency.
For two months now, protesters have taken to Thailand's streets demanding a change in government. The lengthy series of demonstrations is expected to reach new heights of disruption next Monday, when protest leaders plan to "shut down" Bangkok in hopes of pushing out a political leadership they consider irredeemably corrupt.
But the optimism of the colourful downtown marches has been matched by the financial uncertainty they have sown, with the economically vital tourism industry warning of decreased visits, economists substantially paring back growth expectations and markets tipped into losses.
The Stock Exchange of Bangkok has fallen 9.5 per cent since Nov. 24, the day of the first major anti-government rally in Bangkok. The baht ended the Thai trading day at 33.13 to the U.S. dollar, after a prolonged sell-off that has seen it give up nearly three years of gains. On Monday, the Stock Exchange of Thailand gained six points to close at 1,230 points amid late-day buying into cheaper shares, although market participants offered a decidedly grim outlook.
The SET is at risk of falling below 1,100 points, and the baht may reach 34 to the dollar, warned Voravan Tarapoom, the chief executive officer of BBL Asset Management Co. Ltd., which has nearly $12-billion in assets under management.
Political turmoil "will be a big cloud in the investment market for a while," she said in an interview. "The longer we live with uncertainty, the worse it will be for the country."
Local reports suggest foreign investors have withdrawn billions of dollars from the country – with nearly $100-million in bond sales Monday alone – after years of multi-billion-dollar capital inflows. With no clear path to resolution of a political dispute whose roots date back some 12 years, observers worry that the country could go without an effective government for some time, triggering broader pain in the real economy.
At Asia Plus Securities Public Co. Ltd., staff expect to trim earlier forecasts of 4.3 per cent 2014 GDP growth to 3 per cent or below. Earnings per share, too, are likely to see a 5 to 10 per cent trim in expectations.
"The main issue is domestic factors, especially political issues," said Porranee Thongyen, executive vice president of research. She also expects further interest rate cuts, after the Bank of Thailand made a surprise reduction to 2.25 per cent in late November. "It's highly possible the Bank of Thailand will cut another 25 or 30 points to support the slowdown in the economy," she said.
The tourism industry, responsible for more than 7 per cent of GDP in a country whose capital was expected to be the world's top travel destination in 2013, is already showing early indications of pain. Diminished demand has prompted airlines to cancel 112 scheduled Bangkok flights over the next seven weeks, local media reported. The Tourism Council of Thailand has predicted that January alone will see a reduction in 400,000 tourist visits, a 16-per-cent drop, and nearly $600-million in decreased revenues.
The Thai economy was already, some observers warned, operating inside an unstable bubble, one enlarged by a frenzy of borrowing and heavy export reliance on souring economies. Between 2011 and 2013, the debt-service ratio among indebted Thai households rose by 13 per cent; among the poorest Thais, the debt-service ratio now sits at 62 per cent, well above the 40 per cent cutoff for financial jeopardy established by the Bank of Canada. Thai government spending, too, has ballooned by some 40 per cent since 2008 amid a succession of deficit budgets.
At the same time, roughly 75 per cent of the country's GDP is drawn from exports, more than half of which are destined to ASEAN markets, including China, where growth is cooling.
Those factors make it unclear whether the south-east Asian state will be able to hold onto its "Teflon Thailand" moniker, won by its economy's ability to continue unaffected in the face of previous years' protests. Optimists hope, if nothing else, the 2014 demonstrations will succeed in placing the country on a path less prone to the corruption that has bedevilled it.
"If we have to pay today – short-term pain for longer-term gain – we can bear it," said Ms. Voravan.