Talk of intervention in foreign exchange markets by a group of Asian central banks as the unrest in Thailand continued and the South Korean won fell to new four year lows.
The Thai unrest continued, but there were no more reports of civil unrest or clashes between various groups of protesters who seemingly remain on track to force a change in government and perhaps even a change in the way the country is governed.
There’s talk of abandoning full democracy and going back to a partly elected, partly appointed parliament with strong control from the government.
Stock markets were weak, in Japan a race for the leadership of the ruling Liberal democratic Party could see a bidding war by contenders looking to get an edge in a race to the bottom so far as the stagnating economy is concerned.
Dealers in Tokyo, Hong Kong and Europe reported signs of intervention in Malaysia, Indonesia, the Philippines and India – each selling dollars in favour of their currencies.
The Thai central bank said it had intervened to support the baht yesterday to stop it falling too sharply on growing fears by investors who are looking to exit the country.
They weren’t concerted, but came within a small time difference of each other.
And the South Korean central bank continued its support of the won, but at lower levels than seen in the past month.
Malaysia is due to see a major economic announcement at the weekend by the Government that might raise fears that the nervous administration is prepared to accept higher inflation and spending, but lower interest rates to remain in power.
Falling oil prices are having an impact on Indonesia and Malaysia, but will be beneficial to energy short India and the Philippines.
The turmoil in Thailand continued and investors are growing more wary of a country that Merrill Lynch’s latest monthly Fund Managers Survey revealed as being a highly favoured emerging market.
It was in fact second after Russia, where sentiment and interest from foreign investors has also slumped (along with the local market and currency) since the invasion of Georgia.
South Korea’s won fell past 1,150 per dollar for the first time since August 2004. It was just under 1090 won to the dollar last Friday and fell past 1100 on Tuesday after a senior minister denied there was a ‘financial crisis’.
Dealers said the won traded at 1,152.10 per dollar, down from 1,134.00 on Tuesday at the close.
The currency has fallen 19% so far this year.
While falling commodity prices, especially oil, will have a positive impact, the prices of important commodities such as iron ore, coal and some specialised commodities won’t drop and will in fact cost even more because of the fall in the value of the currency.
The fall in the won is also limiting the positive impact from the drop in commodity prices such as oil (as we are finding in Australia).
Interest rates set by the central bank are running at 5.25% and the bank meets in a week to discuss a change. If the currency continues to weaken, a small increase might have to happen.
News agency reports from Bangkok said thousands of protesters besieging Thailand’s seat of government rejected talks with the military yesterday, but didn’t spark any further violence.
The protestors said they would only negotiate after Prime Minister Samak Sundaravej steps down, but there’s no sign of that happening.
The state of emergency in Bangkok remained in place for a second day, but no moves by the military were observed.
But Reuters reported that a strike by unions representing 200,000 employees at state enterprises, won few followers with services such as water, transport and planes, running as usual.
The workers are among the country’s poor and working class, the protestors are well off middle class urban voters who resent the power that the poor now have in voting for governments like the current one.
The military has made no move to evict activists squatting in the Government House compound, and one of the key protest leaders said they would only open negotiations if Samak resigns
Bloomberg reported last night that brokers Credit Suisse had urged investors to avoid shares in Malaysia and Thailand.
"Thailand, which entered a state of emergency yesterday, isn’t a buying opportunity yet because violence there will continue and the nation will become "ungovernable,” Bloomberg quoted Credit Suisse as saying in a report to clients yesterday.
It said Credit Suisse analysts also kept their "underweight” rating on Malaysian stocks, saying a power struggle between the government and opposition leader Anwar Ibrahim is increasing risks to the economy. September 16 is a deadline Mr Ibrahim has declared when he is confident he will be able to change the government!
Thailand’s SET Index has dropped 24% so far this year and was weaker again yesterday after a 3.2% fall Tuesday.
The Malaysian market is down 25% as commodity prices, led by oil and palm oil, have fallen back from record levels.
Growth in Thailand may ease after growing by 5.7% in the first half; Malaysia’s economy grew 6.3% in the June quarter, down from 7.1% in the first quarter. Growth could further slow this half to the slowest pace in three years.
