Thai shares jumped after US shares on Friday; S&P said Thailand COVID losses are significantly higher than peers

Thai shares jumped up on Friday after US shares were buoyed by US banking regulators to ease restrictions. It will now make it easier for banks to invest in venture capital funds and derivatives trading. 

By relaxing the Volcker Rule, it has lifted US big banks’ shares and consequently the US markets on Thursday. 

The Volcker Rule is part of the broader Dodd-Frank bill passed in 2010 to crack down on risky behavior by banks and firms in Wall Street.

Other supportive news for SET and other bourses in Asia include the European Central Bank (ECB)’s decision to set up a new backstop facility to provide loans to central banks outside of the Eurozone. 

Both news have outshined the negative sentiment from the International Monetary Fund’s latest prediction that the global economy could go into a recession of 4.9 per cent instead of the 3 per cent contraction they previously estimated. 

Thai shares have subsequently traded up by 13 points from 1325 to 1338 immediately after the opening and have continued to trade up to 1341 or by 1.21 per cent as of 11:00 a.m. 

Avin Sony, head of Institutional Sales at Asia Plus Securities told Thai Enquirer that the extra liquidity from the Volcker Rule will be limited to the US only rather than coming to Asia or Thailand. 

However, since US markets were up on Thursday, Thai shares have followed, as the Thai market was oversold in June.

“We fell from 1450 to 1300 on pretty much no news and now, we are tracking US markets because there is no news domestically,” he said.

Avin said the Bank of Thailand (BOT)’s decision to lower its GDP prediction for Thailand in 2020 from 5.3 to 8.1 per cent was largely expected. 

At the same time, the BOT’s decision to stop Thai banks from paying out interim dividends in August has only affected banks.

S&P

S&P Global Ratings said on Friday that Asia-Pacific’s economy will shrink by 1.3 per cent in 2020 but will come back to a growth of 6.9 per cent in 2021, implying a loss nearing US$3 trillion over the past two years. 

There is also a risk of “balance sheet recession.” This occurs when at least one important sector of the economy, the government, firms or households tries to save more.

S&P said the pandemic caused a sudden stop in activity, and to prevent a collapse, policymakers and banks have provided extraordinary financial support to firms and households. 

There was no other alternative but this will come at a cost as debt will be higher and financial positions will be weaker, they added.

For Thailand, the rating firm said the outbreak and mitigation measures have caused severe disruption in the large tourism sector. 

They now expect the Thai economy to decline by 5.1 per cent for 2020, compared to its previous estimation of 4.2 per cent.

“We expect a permanent economic loss of about 4 per cent of GDP for Thailand, significantly higher than the regional average due to the lasting effect of COVID-19 on tourism,” said Vishrut Rana, Asia-Pacific economist at S&P.

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