THAI STOCKS PLUNGE. AGAIN.

UNCLAS BANGKOK 003229 STATE FOR EAP/MLS AND EB STATE PASS TO USTR TREASURY FOR OASIA COMMERCE FOR EAP/MAC/OKSA SINGAPORE FOR FINATT BAKER SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN ECON EINV ETRD TH SUBJECT: THAI STOCKS PLUNGE. AGAIN. Sensitive But Unclassified. For Official Use Only. ¶1. (U) The Stock Exchange of Thailand (SET) dropped approximately 10.5 percent October 27, prompting an automatic 30 minute halt in trading for the second time in one month, and only the third time since the circuit-breaker mechanism was implemented in 1975. The main SET index closed at 387.43, down more than 54 percent since January and at its lowest level since May 2003. Energy and banking stocks led the sell-off, in which foreign investors reportedly sold approximately $64 million in shares. ¶2. (U) The Thai press reported October 28 Deputy Prime Minister Olarn Chaipravat's comments that yesterday's sell-off was due to continued selling by foreign investors. Olarn stated that foreign holdings of Thai shares now stand at approximately $2.5 billion. ¶3. (SBU) The Executive Director of a financial services company told us that Olarn's comments directed at foreign investors are not off the mark. Thai investors have been largely "sitting on the sidelines" the past few years due to Thailand's political uncertainty. In the meantime, much foreign investment in the SET has come by way of hedge funds that are now unwinding investments, turning stocks into cash for their clients. As such, he argued, yesterday's sell-off had more to do with global financial stresses than with Thailand's domestic market situation. ¶4. (SBU) The Vice President and Head of Research of another financial firm concurred on the role of foreign investors, but also noted other reasons for the sell-off, namely: a panic over a spill-over into Asia of the U.S. financial crisis, declining commodity prices, and the lay-offs that will occur from an anticipated closing of factories due to decreased demand for exports. She pointed to a forecast by the Federation of Thai Industries that Thailand could see one million layoffs due to weakening demand domestically and abroad. (Note: she also believes foreign holdings of Thai shares run higher than Deputy Prime Minister Olarn's estimate, at approximately $4.5 billion. End Note.) ¶5. (SBU) Comment: With total SET capitalization estimated (after yesterday's closing) at USD 91 billion, it is hard to argue that the sell-off by foreign investors, if only USD 64 million, was the cause of the plunge. It is not clear how good the data are with regard to foreign participation in the market. What is clear is that for many observers, foreign investors seem to a target of blame for the market's collapse. End Comment.