BOT monitors China stocks

The Bank of Thailand is keeping a close eye on the consequences of sharp Chinese stock market falls over the past three weeks marked by yesterday’s further 5.9 per cent drop of benchmark Shanghai Composite Index, which led to significant declines of Thai and other Asian share prices, said spokesman Chirathep Senivongs na Ayudhya.

The Stock Exchange of Thailand (SET) index fell 0.91 per cent to close at 1,470 while Hong Kong’s Hang Seng index plunged 5.8 per cent to end at 23,516.56, the biggest one-day drop since October 2008, largely due to the continuing tumble on China’s mainland exchanges and Greek’s crisis.

Chirathep said investors have become increasingly worried by the sharp falls and volatility of Chinese stocks, but the impacts on the Chinese economy, the world’s second-largest, are not yet clear at this stage. For Thailand, China is currently the biggest export market and the largest source of foreign tourists whose number is projected to top 7 million this year, up from last year’s 4.6 million.

The Thai central bank’s spokesman said that if Chinese stocks continued to tumble, there could be significant impacts on the international community’s confidence in the Chinese economy. As trillions of dollars have been wiped off from equities and other financial instruments, the private sector’s confidence would also take a hit and there would be a negative impact on the wealth of Chinese households in terms of savings and asset prices.

However, Chirathep said the impact on capital market mobilisation should be minimal because China’s aggregate financing from stock markets is small, representing only 2 per cent of the total. Regarding Chinese stock investors, he said individual investors currently account for about 20 per cent of market capitalisation with their source of funds being household savings and margin loans, resulting in forced sales when share prices fall sharply.

On Thai investment in Chinese stocks, he said, the impacts are relatively small because most Thais invest through foreign investment funds which focus on deposits and debt instruments that have high credit rating.

As of yesterday, the trading of nearly 1,300 firm shares was suspended on China’s exchanges, as China’s central bank pledged to continue supporting stock market stability amid fears of a big increase in “irrational selling”.

Meanwhile, BofA Merrill Lynch warned there is a risk of financial crisis in China as companies scrambled to escape the rout by having their shares suspended and indexes plunged after Beijing had struggled for more than a week to intervene. 

Chinese authorities yesterday unveiled another battery of measures to arrest the sell-off, and the People’s Bank of China said it would step up support to brokerages enlisted to prop up shares.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen closed down 6.8 per cent, while the Shanghai Composite Index shed 5.9 per cent.

With nearly half the market on a trading halt and another round of margin calls forcing leveraged investors to dump whatever shares could find a buyer, blue chips that had been supported by stabilisation funds earlier in the week bore the brunt.

“I’ve never seen this kind of slump before. I don’t think anyone has. Liquidity is totally depleted,” said Du Changchun, an analyst at Northeast Securities.

“Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips.”

More than 30 per cent has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China’s market turmoil will destabilise the real economy is now a bigger risk than the crisis in Greece.

More than 500 China-listed firms announced trading halts on the Shanghai and Shenzhen exchanges on Wednesday, taking total suspensions to about 1,300 – 45 per cent of the market.