Thai stocks jumped 11.2 percent yesterday, recovering from a historic fall that shook regional markets and sparked concerns over another Asian financial crisis.
The Stock Exchange of Thailand's benchmark SET Index ended a tense day at 691.55 after it tumbled nearly 15 percent the day before in reaction to new rules restricting foreign investment designed to stem the baht's surge.
In the wake of the turmoil, Thai authorities late on Tuesday lifted the controls they had imposed just 24 hours earlier on stock investments while leaving curbs on foreign investment in bonds and other debt instruments.
Stock Exchange president Patareeya Benjapolchai praised the about-face as a "positive action" that would restore investor confidence by showing that authorities moved swiftly to solve a problem.
"We believe the market will recover, though it will take a while to match the losses," she said.
Despite yesterday's recovery, uncertainty continued to stalk the country's financial markets.
Analysts said the about-face would hardly instill confidence in the nation's new, military-backed regime and could damage longer-term prospects of the equity market.
"Thailand's prior strength was the freedom of its market and the transparency with which the market was run," said HSBC's Frederick Neumann. "Even if they lift the controls, that's been lost now. They've lost credibility in the market, and that question now is will it happen again?"
Regional markets recovered amid relief that Thai authorities had relaxed the controls that many investors viewed as overly drastic. Stocks in Hong Kong, South Korea, Indonesia and Malaysia all recovered from their drops on Tuesday.
Indonesian Finance Minister Sri Mulyani Indrawati said the impact of Thailand's moves on regional markets was likely to be temporary.
"I am optimistic the effect of the [Thai] policy is only short-term," he told reporters.
On Tuesday, the Thai stock market had its worst day ever, with the benchmark stock index tumbling as much as 19.5 percent before recovering some to close down 14.8 percent.
The plunge came after the Bank of Thailand announced late on Monday tough measures to clamp down on speculative inflows that have lifted the baht to nine-year highs. The measures required all banks to hold in reserve for one year 30 percent of capital inflows that aren't trade- or services-related, or repatriation of Thai residents' investments abroad.
Also, foreign investors must pay a 10 percent penalty unless they keep funds in the country for a year.
The new rules meant that if a foreign investor allocated the equivalent of 100 million baht (US$2.8 million) to the Thai bond market, the investor could only buy 70 million baht of bonds, while the remainder would be held by the central bank, earning no interest.
The baht has weakened some since hitting a nine-year high of 35.09 per US dollar on Monday. Yesterday, the US dollar was trading at 35.60 baht, down from 35.75 late on Tuesday.
Analysts downplayed worries about another regional crisis, arguing the region's economic health is much better than it was in 1997.
"Ten years ago, a small capital outflow could trigger a crisis, that is no longer true," said Nagesh Kumar, director of Research and Information Systems, a New Delhi-based think tank. "Asian countries have built very strong foreign exchange reserves."
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