Thailand stocks fall, baht drops amid martial law

Martial law triggers the SET to suffer its biggest drop in nearly two weeks but some analysts say the army's move may bring about stability

PUBLISHED : Wednesday, 21 May, 2014, 1:11am
UPDATED : Wednesday, 21 May, 2014, 1:11am

Thailand's benchmark saw its biggest drop in nearly two weeks and the baht declined as the army imposed martial law nationwide amid political turmoil.

The key SET Index fell 1.1 per cent in Bangkok trading while the baht weakened 0.2 per cent versus the dollar, having earlier dropped as much as 0.6 per cent.

The army acted a day after data showed gross domestic product shrank 0.6 per cent in the first three months of this year compared with a year earlier.

The move is not a coup and people should not be concerned, army chief Prayuth Chan-Ocha said on local television, asking political groups to end protests that began in November and led to Yingluck Shinawatra's ouster as elected leader.

"Some foreign investors will dislike the martial law because it shows the situation is out of hand," said Prapas Tonpibulsak, chief investment officer at Krungsri Asset Management.

"The military's intervention may force politicians to be more willing to go to the negotiating table now."

Thailand's 10-year bonds fell, pushing yield up three basis points, or 0.03 of a percentage point, to 3.75 per cent. The baht traded at 32.53 per dollar, after falling to a one-week low of 32.66. Five-year credit-default swaps rose three basis points to 128 in Hong Kong.

The currency pared losses on suspected intervention by the central bank, according to Kozo Hasegawa, a currency trader at Sumitomo Mitsui Banking.

The banking system and financial markets functioned normally yesterday after the army's announcement on martial law, Bank of Thailand spokeswoman Roong Mallikamas wrote in a message to journalists.

She declined to comment when contacted by phone on whether the central bank intervened in the foreign-exchange market.

The latest move is the army's most direct involvement in the Southeast Asian nation's politics since 2006, when then-premier Thaksin Shinawatra was removed in a coup. Martial law already is in place in parts of southern Thailand, and then-Prime Minister Abhisit Vejjajiva briefly declared it for Bangkok in 2010 to quell anti-government protests.

"The imposition of martial law is not, in itself, negative for Thailand's ratings, although clearly we are keeping the situation under close review," Andrew Colquhoun, head of Asia-Pacific sovereigns at Fitch Ratings, said. "It may even help to break Thailand out of the political deadlock of the past six months."

Anti-government protesters halted planned rallies yesterday, including one in central Bangkok, to assess the army's decision, said a spokesman for protest leader Suthep Thaugsuban.

Suthep's protesters derailed plans for a July 20 election and the army said previously it may use force to counter any escalation of violence. Yingluck was removed on May 7 after a court ruled she abused her power.