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Bangkok, Business Day - Tuesday Thai stock investors suffered the largest single-day drop since the Stock Exachange of Thailand (SET) was born in 1975.
In an unique measure to install capital controls to protect against Baht speculation, Thailand's central bank announced their new rules: In short, 30% of all foreign investments in Thailand would have to be deposited. If the investor would repratriate fund within one year a ten 10% withholding tax would apply.
These rules would apply to all sums over 20,000 USD not linked to trade or foreign direct investment.
The announcement of the "pay 100, invest 70 and if you run again we keep 10"-policy caused instant havoc. The resulting sell-out with the volume of 70,128 billion Baht is a record in the history of the SET. Automatic measures to depend against a plunging index were activated first time ever at 11.30 p.m., where the "circuit-breaker" went active to halt trading for half an hour, but at re-activation the SET index keep falling. It dropped to below 600 for a short period after 3 p.m., then appreciated in the hours to follow to end at 622.14, 14.8% of yesterdays value.
Late Tuesday a meeting was held between the Finance Ministry, the SET, the Securities and Exchange Commission and the Bank of Thailand and it was agreed that the measures were too damaging. Finance Minister Pridiyathorn Devakula stated that inflows solely for stock investment was to be excluded from the harsh measure.
Business Day expects this to lead to a surge in tomorrow's index. However, the damage to the faith in Thailand as a reliable investment target will take time to overcome.
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