Thai stock plunge drags Asia lower Markets see biggest drop since 1997 financial crisis as central bank put controls on money inflows. December 19 2006: 6:17 AM EST
BANGKOK, Thailand (Reuters) -- Thai stocks suffered their biggest drop since Asia's 1997 financial crisis as foreign investors took fright at drastic measures to rein in the baht, prompting calls for a central bank U-turn.
The currency dropped 2 percent from Monday's 9-1/2-year high after the central bank, worried strength in Asia's best-performing currency would hurt exporters, slapped controls on short-term speculative money inflows. Video More video CNN's Christine Romans looks at what resulted from the U.S. Treasury Secretary's visit to China. (December 15) Play video
The main stock index plunged more than 13 percent to a two-year low at one point, wiping more than $20 billion off the value of southeast Asia's third-largest bourse.
Japan's Nikkei 225 was down 1.1 percent, while China's Shanghai Composite rose 1.4 percent. Hong Kong's Hang Seng was down 1.2 percent.
Reaction in the Thai bond markets was ruthless as foreign investors rushed for the exit, forcing prices sharply lower and pushing yields up 20-30 basis points for all maturities.
"Please call an ambulance, there is a bloodbath," a dealer at a domestic brokerage said.
"Foreign players seem to be selling all maturities today, but I think it's only the first round. There is a lot of money already in the Thai markets. If they're pulling out, we're dead," he said. "I'm not sure if we're going to get a bonus this year."
After the stock index ended the morning 11.76 percent down, bourse president Patareeya Benjapolchai begged the Bank of Thailand to review its policies.
But the central bank retorted it was too soon for any review of a measure analysts described as "draconian" and a "straitjacket" for equity investors. Selling frenzy
The reaction was far more severe than the 4 percent stock-market fall - and quick recovery - that followed the bloodless September 19 coup that ousted Prime Minister Thaksin Shinawatra and ended a long political crisis.
The stock-market decline threatened to be the biggest one-day sell-off since the 1997/98 meltdown, which was caused in part by massive international speculation against the baht.
In an unprecedented move in the stock market's 31-year history, officials halted trading for half an hour when the index fell 10 percent. When it resumed, the slide continued.
If it dropped a further 10 percent, trading would be halted again for an hour, one official said.
"There's heavy selling from foreign investors because the new measures are quite aggressive towards foreign-fund flows," Tisco Securities strategist Viwat Techapoonpol said. "It is hard to forecast how many percent the SET will fall."
The baht, the fastest-rising Asian currency against the dollar this year, was trading around 35.70 per dollar, down 1.8 percent from 35.06 early on Monday before the central bank announced its latest steps to halt currency speculation. It dropped as low as 35.97 per dollar after the central bank announced the baht restrictions.
Under the measures, investors will have to keep their money in Thailand for at least a year or face stiff financial penalties. The new regulation affects all sums over $20,000 not linked to trade or foreign direct investment.
Global index-compilers MSCI Barra and FTSE said they were studying the currency control amid speculation Thailand might be dropped from international equities indices.
The central bank said it had been forced to act because short-term money inflows had jumped to around $950 million in the first week of December from about $300 million a week in November.
It said it was satisfied with the outcome and urged foreign investors not to panic. Confusion
But some analysts said it had left questions unanswered, causing several foreign banks to stop quoting the baht.
"The message from the Bank of Thailand wasn't entirely clear, so it may take a few days for things to settle down," said ABN AMRO currency strategist Shahab Jalinoos.
"People are trying to work out what the measure means and it is wide ranging. Even equity analysts do not know to what extent this will affect their market."
The Bank of Thailand was scheduled to meet brokers and asset managers around 0630 GMT to clarify its policies.
Exporters in Thailand, who have long been complained the strength of the baht was making them uncompetitive, rejoiced at the baht's fall.
"People in industries such as garments and textiles were already looking at countries such as the Philippines, Vietnam and China for relocating simply because their products were not competitive due to such a high baht," said Greg Watkins, executive director of the British Chambers of Commerce.
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