Events in Thailand overshadow Fed meeting

MARKETS often have a way of behaving unexpectedly. This week, for example, everyone expected the US Federal Reserve to keep its short-term interest rates unchanged, following which stocks were supposed to move higher. As it turned out, the Fed did keep the federal funds rate at 5.25 per cent, but despite the added boost of a weak oil price and after an uptick that lasted one day, stocks actually headed lower. Still, because of buying earlier in the week, the Straits Times Index ended the five days virtually unchanged at 2,520.50.

Thailand probably played a big part. Notwithstanding the reassurances issued by market experts about this time being different from 1997 when a Thai baht devaluation sparked off a region-wide crash, the fact that there will be a government change after Wednesday's bloodless military coup means alarm bells have been ringing, leading to elevated risk premiums for the region.

In its assessment of the Thai situation, Morgan Stanley said it thinks the political uncertainty could last through 2007, severely affecting the macro outlook. 'We expect business confidence to continue to sink, slowly pushing the economy into stagflation,' it said, adding that it has cut its 2007 Thai growth estimate from 4.5 to 4 per cent.

Possibly because Thailand dropped sharply yesterday after a reasonably resilient showing on its first post-coup session on Thursday, and probably because European markets opened with most markets posting losses of at least one per cent, the Straits Times Index dropped 17.76 points at 2,520.50. Throughout the week, it was the banks - mainly DBS and UOB - which shifted the index, followed by Singapore Telecom, probably because it has a large Thai associate. SingTel was also in the news yesterday following its appointment of a new chief executive officer.
In the second line, interest was rotational, sporadic and without clear pattern. Whereas the previous week saw tech stocks in play - particularly the plastic moulding counters - this week saw a diverse range of counters enter the picture depending on whether there was company-specific news or fresh research reports.

Heshe Holdings, however, yesterday surged 5 cents or 34 per cent to 19 cents with 128 million shares traded with neither fresh news nor research to drive it. The only reason dealers could provide was that Heshe is linked to businessman Oei Hong Leong in that both are investing in Citiraya Industries - a failed company whose shares have been suspended for two years - and Mr Oei had on Monday said he was prepared to put as much money as was necessary to ensure the success of Citiraya.

Real estate investment trusts were in play earlier in the week thanks to a JP Morgan report which recommended a 'buy' on some. Neptune Orient Lines came under pressure because of continued concerns over falling freight rates and its Q4 profit, while the tech play of the previous week fizzled out.

In yesterday's session, the listing of 14 structured warrants on China Merchants Bank to coincide with the latter's listing in Hong Kong helped push volume done in structured warrants to 325 million units worth $177 million, triple Thursday's $57 million.