Equities and FDI now exempted from 30% reserve requirement In a quick reversal, the Minister of Finance announced on television that the 30% unremunerated reserve requirement (URR) will no longer apply to equities and foreign direct investment. It is also possible that property purchases by foreigners would also be exempted since he stated that fixed income and loans will be the main target of the 30% reserve requirement. This is because, according to the Finance Minister, the bulk of short-term inflows were concentrated on these two items. Details are still to be worked out as to which items are exempted. Rebound assured but risk premium has risen Along with others we are relieved and expect a rebound in the Thai stock market although not to the levels prior to the introduction of URR. We believe that investors will price in an increased risk premium on Thai equities since prior confidence that the stock market will be free from restrictions cannot be fully restored. Moreover, data requirements to distinguish between foreign investments that are under URR and those that are not can reduce foreign investment flexibility and be burdensome. Remaining matters The reversal of policy after 30 hours clearly came about because of the historic 15% fall in the stock market in one day and a market cap loss of Bt800bn. The government can expect Thai investors to complain or even file charges for the damages they suffered and politically this is a negative for the government and the Finance Minister who earlier praised the measure. The sense of dissatisfaction has landed mainly on the Bank of Thailand, however. Also, details still need to be worked out between the commercial banks, brokers and custodians to verify that foreign funds were indeed brought in to purchase equities. Reports will have to be sent to the BoT every week.
The Quick Reversal on Equities will mean the stock market will rebound (e.g. SET Index +9% on
the open), but has left a bad taste in investors mouths
Ouch, equities investors were needlessly scared yesterday, fearing that they might have to be locked up on Thai investments
for at least a year. Due to the negative backlash from the investment community (e.g. 15% fall in the stock market in one day)
on the capital controls, the Thai government has scrapped its capital restrictions on equities. Because of the head-fake,
investors will price in the additional risk of future capital restrictions or government regulations (on top of political risk).
Political [and hence regulatory] risk has always been a risk in Thailand and investors need to understand this
However, if investors are okay with the myriad of risks, then high investment EQ and risk-tolerant investors may
dabble in some of the beaten down shares [with the caveat that investors limit their exposure to this market.
21 ธ.ค. 49 11:04:57