Thai Stocks, Baht, Bonds Drop as Police Clash With Protesters

By Anuchit Nguyen

Oct. 7 (Bloomberg) -- Thai stocks, the baht and bonds fell as police clashed with protesters surrounding parliament, deepening concern the political crisis will speed an exit by overseas investors.

The benchmark stock index slid to its lowest in more than five years and the baht dropped to a three-week low after police this morning dispersed thousands of protesters who tried to prevent new Prime Minister Somchai Wongsawat from presenting his administration's policies to lawmakers. Clashes resumed in the afternoon as demonstrators sought to prevent members from leaving parliament.

The SET Index dropped 4.2 percent to 528.71 in Bangkok, the lowest since Aug. 27, 2003. The baht fell 0.3 percent to 34.47 per dollar, the weakest since Sept. 15, according to data compiled by Bloomberg. The cost of protecting external debt from default surged.

``The clash has accelerated the baht's weakness, which has already been depressed by outflows of foreign investment from the stock market,'' said Usara Wilaipich, an economist at Standard Chartered Bank in Bangkok. ``The escalating political conflict will certainly spur additional selling of stocks by overseas investors.''

Foreigners Sell

Foreigners' net sales of Thai stocks have mounted to 128 billion baht ($3.7 billion) since May 25, when demonstrators set out to topple the government, which they accuse of being a proxy for former leader Thaksin Shinawatra, who fled to the U.K. in August to escape corruption charges.

PTT Pcl, the nation's biggest oil company, declined 3.5 percent to 195 baht, the lowest Jan. 9, 2007. Banpu Pcl, the largest coal producer, slid 13 percent to 222 baht, the steepest drop since Dec. 19, 2006.

Deputy Prime Minister Chavalit Yongchaiyudh resigned today after the clashes left dozens of people injured. Police fired tear gas shortly after dawn and again in the afternoon. The number of injured protesters rose to 108 as of 2 p.m. in Bangkok, according to the Public Health Ministry.

The use of tear gas by police may reinvigorate the five- month-old anti-government movement led by the People's Alliance for Democracy, which had waned since Somchai took office three weeks ago, vowing to reconcile with demonstrators.

Thaksin's Sister

Somchai, married to Thaksin's sister Yaowapa Wongsawat, has vowed to increase rural spending in a bid to boost the economy. He took office on Sept. 18 after his predecessor was disqualified for violating the constitution by accepting money to host a cooking show.

Thailand's key stock index has slumped 40 percent since protests began May 25, and economic growth slowed in the second quarter as domestic spending eased.

The Finance Ministry on Sept. 25 cut its economic growth estimate for 2008 to 5.1 percent, from 5.6 percent, and said the economy will slow to as little as 4 percent next year as the political crisis and turbulent global markets curb spending, investment and exports.

Thailand's central bank will keep its benchmark interest rate unchanged at 3.75 percent when policy makers meet tomorrow, according to 15 of 16 economists surveyed by Bloomberg. The rate has been raised 50 basis points since July to quell the fastest inflation in a decade. Political uncertainty is a bigger risk to the nation's growth outlook than the global financial ``storm,'' Governor Tarisa Watanagase said Sept. 18.

Default Swaps

Five-year credit-default swaps on Thailand's debt were quoted 21 basis points higher at 206 as of 5:28 p.m. in Singapore, data compiled by Bloomberg show. The cost, which rises as perceptions of repayment ability deteriorate, is equivalent to $206,000 annually to protect $10 million in bonds. Thailand's default swaps have climbed since May.

Ten-year bonds fell for a third day. The yield on the benchmark 5.125 percent government note due March 2018 rose 5 basis points to 4.38 percent, a one-week high, according to the Thai Bond Market Association. The price slid 0.353, or 3.53 baht per 1,000 baht face amount, to 105.73. A basis point is 0.01 percentage point.

``Our expectation is that some degree of unrest will continue,'' said James McCormack, the head of Asian sovereign rankings at Fitch Ratings in Hong Kong. ``It's going to be unsettled.''

Fitch rates Thailand's long-term debt as BBB+, the third- lowest investment grade.

Overseas investors sold 2.2 billion baht more Thai stocks than they bought yesterday, an 11th straight day of net sales, according to Bloomberg's data.

To contact the reporter on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net