Asian Markets May Feel Ripples From Thailand's Move
Thailand's attempt to impose curbs on foreign investment may have damaged its credibility and those of other other Asian markets, analysts said.
"Analysts are saying that Thai officials acted too fast," CNBC Asia's Christine Tan said on "Power Lunch." "It was a rash decision by the newly military-installed government--and some were stunned at how quickly the central bank changed its mind, even questioning whether damage has been done and whether the government lost its credibility."
The Thai stock market plunged nearly 15% on Tuesday after the government attempted to halt the Thai currency's rise against the dollar by imposing controls on foreign investment. The sell-off, which rippled through other Asian markets, prompted Thai officials to hastily amend the new rule and say it wouldn't apply to stock transactions.
"Most agree markets will recover tomorrow, but not to where they were because risks have clearly changed," Tan said.
Other experts agreed. Axel Merk, fund manager of the Merk Hard Currency Fund, said Thailand's move should be a reminder that Asian currencies are risky and aren't meant for average investors.
"The Thai government says the the U.S. dollar is falling too quickly and the Thai currency is appreciating too much," Merk said on "Power Lunch."
"Much of Asia has the same problem in that they are hugely dependent on exports to American consumer and the U.S. economy is slowing down. On top of that, there is upward pressure on their currencies and it's just too much for them to handle. They tried to do something about it, and it backfired."
Merk said the upward pressure across Asian currencies isn't going away, and investors need to keep that in mind before delving into emerging markets.
"Investors have to wonder how they will position themselvs as the dollar is under pressure and Asian countries are struggling to deal with a weakening U.S. economy," Merk said. "These currencies are meant for the speculator and not for the folks who are just fearing about the value of the dollar. There are better places for those investors to be."
Thailand's Finance Minister, Pridiyathorn Devakula, said that the new controls would remain on foreign investments in bonds and commercial paper as part of central bank's measures to stem the surge of speculative investment in the Thai baht, which had risen to a nine-year high Monday.
The Bank of Thailand, the country's central bank, said that from Tuesday all banks would be required to hold in reserve for one year 30% of capital inflows that aren't trade- or services-related or repatriation of Thai residents' investments abroad.
"Sends a Message"
"The reaction in the Thai market is proportionate to the gaffe," Drew Kanaly, chairman of Kanaly Trust Company, told CNBC's "Morning Call." "Hopefully, that sends a mesage to policy makers around the world that we dont need policies that will restrict the free flow of capital."
The measures are a significant escalation of Thailand's battle to stop the baht from appreciating sharply and are a further indication that Asian countries, despite growing economic strength in the region, aren't willing to let their currencies rise sharply and will intervene and impose capital controls if necessary. A stronger currency could limit exports.
The move is "certainly unexpected" and "anything in the nature of capital controls" tends to unsettle investors, Jeremy Stretch, senior currency strategist at Rabobank International, told CNBC's "Squawk Box Europe."
The Stock Exchange of Thailand suspended trade for 30 minutes after the market plunged more than 10%, activating a circuit breaker. Stocks continued their freefall when trading resumed and the market closed down 14.84%, its biggest one-day drop since 1990.
The Stock Exchange said the central bank should review its decision to impose tough rules against baht speculation. SET President Patareeya Benjapolchai said she hopes the Bank of Thailand will use the measures only for the short term.
The Thai government's move was a "very heavy-handed measure," and investors are well aware that there was a coup as recently as September, Robobank's Stretch said. The decision could affect investment in emerging markets as a whole, he added.