Global stock markets 'may face volatility'

PHOTO: Global stock markets 'may face volatility'

Only short-term volatility in financial markets is expected, after political gridlock in Washington triggered the first US government shutdown in 17 years.

Economists expect only a limited impact on Thailand's economic fundamentals, which have been weakened by low export orders and delayed government spending.

Speaking at a Kasetsart University seminar, economics guru Narongchai Akrasanee said he foresaw short-term volatility in the global financial market as a result of the shutdown in the US administration, but the real economic sectors should be spared from negative effects.

Confirming this viewpoint was the 1.8-per-cent gain in the Stock Exchange of Thailand yesterday, following a decline over the previous three trading days.

The SET Index gained 25.03 points to close at 1,408.19. Tokyo rose 0.20 per cent and Seoul added 0.10 per cent, but Sydney fell 0.23 per cent. Hong Kong and Shanghai were closed for a public holiday.

The baht also strengthened, by 0.3 per cent to 31.21 per US dollar yesterday morning, after gaining 2.7 per cent last month.

Despite the US administrative shutdown, the baht rose as Thailand posted a US$1.3-billion (S$ 1.6 billion) current-account surplus in August - the first monthly surplus since March.

Narongchai said much of any shutdown impact would be felt in the Thai stock market, while speculative moves could affect the foreign-exchange rate.

Also a member of the Bank of Thailand's Monetary Policy Committee, he said the panel had already taken the US situation into account. "It's been noted that the fiscal stance of the US and Europe will stall their recoveries. There's no reason to panic, as the impacts will be short-lived. The governments should eventually find solutions," he said.

The economist said the overall economic picture had changed, however, due to the delay in the Bt350-billion water-management project and the government's Bt2-trillion infrastructure investment. Thailand's gross domestic product could expand by 4 per cent or lower this year, against the original projection of 5 per cent, he said.

The US government effectively shut down at midnight Washington time yesterday, as Republicans and Democrats refused to give ground to reach a budget deal. The US closure will see about 800,000 federal staff told to remain at home, leading to the closure of numerous agencies in the first shutdown since 1996 - and one that President Barack Obama warned would damage a budding recovery in the world's biggest economy.

Gundy Cahyadi, an economist at DBS Bank, said he did not expect the shutdown to have a significant effect on the Thai economy this year. The bank is also maintaining its forecast for 2014 economic growth at 5.2 per cent. He said he continued to view domestic demand as encouraging, and the outlook in 2014 would be brighter if the government could speed up its Bt2-trillion investment plans.

"The impact [of the US shutdown] on the financial markets, however, could be more disconcerting - and we will closely monitor developments on this front. Uncertainties may lead to further volatility in financial markets.

"From what we can see today, though, sentiment in the regional markets seems to be pretty positive amidst the US shutdown. Part of this is presumably on the back of further dovish expectations for the Fed policy - but we know that this is not certain as yet," he added.

Amornthep Chawala, head of economic and financial market research at CIMB Thai Bank, said he expected that the US Federal Reserve may delay the pull-back of its quantitative-easing policy.

All eyes are now on the negotiation over the US debt ceiling and the "Obamacare" healthcare funding bill before the deadline on October 17, he said. If the negotiation fails, the US recovery could be delayed in the fourth quarter - and this could affect Thailand's exports, he warned.

Siam Commercial Bank's economic centre said it expects the shutdown to last only several days, and to end before October 17.