ANALYSTS' VIEW - Thai PM declares state of emergency
(Reuters) - Thai Prime Minister Samak Sundaravej declared a state of emergency in Bangkok on Tuesday and gave the army control of public order after overnight clashes between pro- and anti-government protesters.
Following are comments from financial analysts:
YANG-MYUNG HONG, CREDIT ANALYST, LEHMAN BROTHERS, HONG KONG
"In the near term there's going to be a lot of volatility. In the medium-term this definitely does not help the economy.
The economy has held up quite well over the past two years but given that the external environment has turned quite unfavourable, we could see this political instability hitting the economy and affecting the credit profile."
"Credit ratings agencies still rate highly the strong external position but we could start to see a weakening on that front. That could make them take this into account and eventually lead to a ratings downgrade or at least a change to a negative outlook."
VINCENT HO, SOVEREIGN RATINGS ANALYST, FITCH RATINGS, HONG
KONG
"Its not a bad thing to announce a state of emergency in Bangkok now because the two groups, the anti- and pro-government groups, are very close to each other in terms of their physical distance. A state of emergency helps to avoid further violence."
"We are at the moment comfortable with the BBB-plus rating/stable outlook assigned to Thailand. When you look at the key credit indicators, Thailand looks in good shape ... but who knows what will happen next?"
"We are still watching the situation -- some of the variables especially the monthly BOP data. We have seen some net capital outflows and the international reserves have been dropping since March this year. So this is a concern for us."
YANG-MYUNG HONG, CREDIT ANALYST, LEHMAN BROTHERS
"In the near term there's going to be a lot of volatility. In the medium-term this definitely does not help the economy.
The economy has held up quite well over the past two years but given that the external environment has turned quite unfavourable, we could see this political instability hitting the economy and affecting the credit profile."
"Credit ratings agencies still rate highly the strong external position but we could start to see a weakening on that front. That could make them take this into account and eventually lead to a ratings downgrade or at least a change to a negative outlook."
NICK BIBBY, BARCLAY'S CAPITAL, SINGAPORE
"Even if things calm down over the next few days, the imposition of martial law is unlikely to resolve Thailand's political turbulence. We still have a number of court cases outstanding against the government.
"Economically, until we get greater clarity in the political situation, domestic demand is going to continue to remain subdued.
"Growth is going to be supported by exports, that have been doing very well, and we are hopeful that we should see some sort of increased government spending coming through."
VISHNU VARATHAN, ECONOMIST AT FORECAST PTE, SINGAPORE:
"I think that it is the culmination of the political tension.
"This will definitely rub investors the wrong way, and we are likely to see pressure on Thai assets and a weaker Thai baht - the offshore baht markets have already given a good indication of what can be expected.
"So in addition to that the bullish dollar and we have a surge in the dollar/baht; the picture probably won't be complete without BoT intervention to cap the rallies in the dollar/baht, but break above the 34.50 cannot be ruled out and chartists will be looking for 34.75 as the next resistance.
"Looks like that both parties want to go all out.
"PAD has nothing to lose and PPP is trying desperately to hold on to power. Of course this is not even factoring in that an unfavourable Election Commission ruling could see the entire government disbanded anyway.
"The military stepping in to take control highlights the factitious state of affairs and policy and political risks are now the main focus.
"Unfortunately given the deterioration in the global economy, resolution of the political tension need not necessarily see a hasty recovery."
USARA WILAIPICH, ECONOMIST AND THOMAS HARR, SENIOR FX
STRATEGIST, STANDARD CHARTERED BANK:
"The announcement of state of emergency will dampen investment sentiment and baht, and negatively impact economic growth in near-term.
"This event of course adds to the negative sentiment for the baht. However, investors should focus not just on the political events in Thailand but also on the deteriorating economic fundamentals such as slowing growth, weakening external balances and monetary policy inaction.
"The next key target for dollar/baht is the 35 psychological resistance level.
"For the potential economic and market impact, this political unrest will add more downside risk to growth in H2, 2008. We expect growth to slowdown significantly from 5.7 percent in H1-2008 to 3.8 percent in H2.
"The current crisis will not only weigh on consumer and investor sentiment, it will also dampen the country's tourism business. We note that visitors from East Asia, who account for 60 percent of total visitor arrivals, are particularly sensitive to political events.
"Together with the prospect of a global economic slowdown, it is likely to reinforce our view that the Bank of Thailand is done with hiking rates in this particular cycle. "
VIWAT TECHAPOONPHOL, TISCO SECURITIES STRATEGIST, BANGKOK
"We will definitely see at least a five-point fall( in stocks), but the fall should be capped by buying from investors who are now starting to snap up cheap stocks as they are betting the life of this government might end soon."
CALLUM HENDERSON, HEAD OF FX STRATEGY, STANDARD CHARTERED
BANK, SINGAPORE:
"The baht is obviously under pressure today because of the political troubles in Thailand - and more specifically today's escalation in tensions.
"However, the economic backdrop is not exactly constructive either. Growth is slowing and inflation - judging by the last number - is starting to come off again.
"That means that the baht is allowed to weaken along with the other Asian currencies. To date, it has actually outperformed in the last few months, meaning that it has appreciated on a NEER basis. That looks unsustainable.
"In order to support export growth, we think that the baht will be allowed to weaken. So long as the move is relatively gradual and that markets are not overly volatile, we do not think that the authorities should mind this. Indeed, this would be necessary just to maintain let alone support export competitiveness, given what is happening elsewhere in Asia."
CHRISTY TAN, CURRENCY STRATEGIST, BANK OF AMERICA,
SINGAPORE
"It seems that protesters are defying the ban against public gathering in Bangkok.
"The standoff without swift resolution will be damaging for the Thai baht."
