The 2006 Thailand coup d'état took place on Tuesday 19 September 2006, when the Royal Thai Army staged a coup against the government of Prime Minister Thaksin Shinawatra. The short-term economic consequences were relatively minor, resulting in stock fluctuations and possible credit rating changes. However, long-term economic consequences of the military government included several radical policy changes, including a drive to a self-sufficiency economy and economic protectionism.
Day 1 (Wednesday)
Stock Exchange
The nation's stock exchange, government departments, banks and schools were ordered to close on Sept. 20 in the wake of a coup, according to a statement broadcast on Thai television. The Thai stock exchange will be closed, and it is "following the situation," said Ladawan Kantawong, a spokeswoman. She earlier said it would open today. Trading of Thai bonds in Bangkok was also suspended, according to the Thai Bond Market Association. Military leaders later said all would reopen tomorrow. It was the first time the exchange shuttered operations for a day other than a holiday since the terror attacks in the U.S. on Sept. 12, 2001.Thai Stock Exchange, Banks, Government Ordered Shut , Bloomberg, 2006-09-20
Shares of mutual funds that invest in Thailand led declines in the region's U.S.-traded stocks after the military seized control of Bangkok and Prime Minister Thaksin Shinawatra declared a state of emergency. Both Thai Fund Inc. , Inc. and Thai Capital Fund Inc. had their biggest losses in more than two months. The Bank of New York Co.'s Asia ADR Index, which tracks the region's American depositary receipts, dropped 1.1 percent to 139.15 in New York.
Thai Fund Inc., a closed-end fund managed by Morgan Stanley, fell 3.8 percent to $8.65 after tumbling as much as 7.1 percent earlier, the steepest drop since July 17. Thai Capital Fund, another closed-end fund run by SCB Asset Management Co., slumped 4.4 percent to $9.70 for its largest decline since May 17. It's a provoking speculation on how Thailand's stock market would react. Shin Corporation's ADRs, each of which represents four ordinary shares, was unchanged at $3.15 as 4,000 shares changed hands. The ADRs of Advanced Info Service Pcl, a unit of Shin, fell 2 cents to $2.45 with 300 shares changing hands. Each Advanced Info ADR represents one ordinary share.
"We will see some selling pressure in the next few days," Marc Faber, founder and managing director of Marc Faber Ltd., said from Chiang Mai, Thailand. "The implications are obviously not overtly favorable because it creates a lot of uncertainty."Bloomberg.com Thai Funds Drop in U.S. Trading; ADRs of Asian Companies Fall, 21 September 2006
World Stock Exchange
Dow Jones Industrial Average and Nasdaq composite trimmed losses by the close Tuesday after a tough session hurt by discouraging comments from Yahoo! and revived worries about the economy following a big drop in housing starts. Also pressuring markets: An apparent coup attempt in Thailand that led that country's prime minister to declare a state of emergency and prepare to abruptly leave a United Nations summit in New York. Thailand is an economic cornerstone of Southeast Asia.Market report, CNN, 2006-09-20
Asian stocks fell by the most in more than a week after the military seized power in Thailand. Honda Motor Co. and SingTel paced declines among companies with investments in the country. The Morgan Stanley Capital International Asia Pacific Index dropped 1.2 percent to 126.49 at 7:03 p.m. in Tokyo, its biggest slide since Sept. 11. All 10 industry groups declined.
Tokyo's Nikkei 225 average fell 1.12 percent by midday on Wednesday, after hitting a one-month low, The market took news of a military coup in Thailand in its stride and also as a profit warning from Yahoo hit Internet stocks. The Nikkei was down 177.78 points at 15,696.50 after falling as low as 15,666.04, its lowest intraday since Aug. 14. "The political uncertainty affects the sentiment for the region as a whole," said Teo Chon Kiat, who helps oversee $1.4 billion at DBS Asset Management in Singapore. Asian economies are so "inter-related" and the political instability "may affect liquidity flow to the region. "
Southeast Asian stocks opened lower after Thai armed forces seized control of Bangkok in a coup, but falls were capped by strong economies and the view that political uncertainties in Thailand are unlikely to spread across borders. The main Singapore stock index was down nearly 1 percent in early trade, while Malaysian shares were off 0.2 percent. Philippine shares, which rose to near 5-month highs on Tuesday, opened 0.5 percent down."You get a knee-jerk reaction, which is to sell, but I would be very surprised if the Thai problem spreads to other countries in the region," Malcolm Wood, regional strategist at Morgan Stanley in Hong Kong, told Reuters. "The fundamentals for regional economies and markets look pretty solid to us."Nikkei tumbles, CNN, 2006-09-20
Honda, Japan's No. 3 automaker, lost 0.8 percent to 3,830 yen. The Tokyo-based company, which has two factories in Thailand, would not operate its auto plant there for today's day shift, said spokeswoman Yuriko Yabe. Its motorcycle unit would operate normally. Nissan, Japan's second-largest automaker, lost 0.6 percent to 1,311 yen. The company closed its two factories in Thailand today following "advice" from the Thai government, according to spokeswoman Mihoko Takeda.
SingTel, Southeast Asia's largest phone company, lost 1.7 percent to S$2.38. It owns about a fifth of Advanced Info Service Pcl, Thailand's biggest mobile-phone operator. Thai Beverages, the nation's biggest brewer, declined 1.7 percent to 28.5 Singapore cents in Singapore trading. Hutchison Telecommunications International Ltd., which has a stake in a mobile-phone venture in Thailand, fell 2.1 percent to HK$12.92.
Travel-related stocks declined on concern tourists may be deterred from visiting Thailand. AirAsia Bhd., Southeast Asia's biggest discount airline, fell 0.6 percent to 1.55 ringgit. The company owns a 49 percent stake in Thai AirAsia Co. Singapore Airlines, the world's No. 2 carrier by market value, lost 0.7 percent to S$14.60. Singapore Air and its SilkAir unit operate 71 flights a week to destinations in Thailand. "Budget airlines may be more affected," said DBS Asset Management's Teo Chon Kiat. "Tourists will try to avoid the country as a destination. Tourism makes up quite a substantial portion of the economy."
Hana Tour Service Inc., the No. 1 South Korean travel company by sales, dropped 2 percent to 63,900 won. One in 10 South Korean holiday makers going abroad went to Thailand in 2005, according to Mirae Asset Securities Co. Singapore-based Banyan Tree Holdings, an operator of luxury hotels that owns properties in Bangkok and Phuket, dropped 2.8 percent to 85.5 Singapore cents.Asian Stocks Drop on Thailand Coup, U.S. Housing; Honda Slides, Bloomberg, 2006-09-20
Currency
The Thai baht encountered its largest loss in almost three years after the military seized control of Bangkok and Prime Minister Thaksin Shinawatra declared a state of emergency, sparking a broad decline in a number of Asian currencies.
The baht fell 1.3 percent to 37.77 per dollar at 5:06 p.m. in New York, from 37.29 late on Sept. 18, the biggest decline since Oct. 14, 2003. The baht trimmed losses after falling by as much as 1.8 percent on speculation King Bhumibol Adulyadej will resolve the crisis. The baht is still up 8.5 percent against the dollar this year, beating the Indonesian rupiah for the biggest advance among 15 Asian currencies tracked by Bloomberg, as record exports spurred a trade surplus.Thai Baht Falls, Credit Ratings on Review After Military Coup, Bloomberg, 2006-09-19
"The baht will come under more pressure," said Marios Maratheftis, a currency strategist at Standard Chartered Plc in London. "There's been an immediate reaction and people will move to the sidelines to see how it all unfolds, but what we'll see will probably be a short-term disruption," said Upadhyaya, currency analyst at Putnam Investments in Boston.
The yen retained most of the day's gains against the euro after a European official said markets had yet to digest policy-makers' remarks calling for the yen to rise against the euro. But the Japanese currency eased around half a yen from session highs against the dollar after the Thai news, tracking a sharp decline in the baht. Developments in Thailand overshadowed U.S. data earlier that showed a surprisingly large fall in housing starts and the rate of wholesale inflation that weighed on the dollar. The dollar had edged lower against the yen before the news of the Thai emergency and ended at ¥117.59, down from the previous session.
Some strategists viewed the move as a simple knee-jerk reaction, as the more-liquid Japanese currency sometimes trades as a proxy for less flexible Asian currencies. "The yen was swept up in by a bit of guilt by association. It's the most liquid Asian currency, and clearly the coup did halt the negative momentum in dollar-yen, which fell sharply after the inflation and housing numbers," said Upadhyaya.
Emerging currencies
Emerging Asian currencies were hit harder. Against the Singapore dollar, the U.S. currency was up 0.3 percent at 1.5906 Singapore dollars and against the Philippine peso, the dollar was up 0.1 percent at 50.030 pesos. Some other emerging market currencies fell, including the Brazilian real, which lost 0.8 percent, and the Indonesian rupiah, which dropped 0.6 percent.
Looking ahead, the market will watch to see whether the Thai crisis prompts investors to abandon other risky emerging market trades. In 1997, the currency's devaluation set off collapses in bonds and stocks from South Korea to Indonesia.and then grew into an international economic slowdown. The Asian financial crisis last decade was triggered in part because of the economies' dependence on short-term private capital from overseas, which poured into the region throughout the 1990s. Capital suddenly fled those countries, causing their currencies to plunge and making it harder for the countries to repay their foreign debt. As international investors shunned short-term government bonds, Russia could no longer finance its budget and defaulted on $40 billion of debt in August 1998.
Investors said the coup is unlikely to trigger another financial crisis in the region. "The situation is very different than it was in 1997 and 1998, when you had large current account deficits in the region and large vulnerability because of borrowing," said Michael Mussa, the International Monetary Fund's research director in 1997 and 1998 who is now an economist at the Institute for International Economics in Washington. "It is a purely domestic political event and when the smoke clears, it may be a good time to buy," said Kevin Hebner, global investment strategist at Greenwich, Connecticut-based Third Wave Global Investors LLC, which manages over $400 million.Thai Baht, Bonds Slump After Military Coup; Stock Market Closed , Bloomberg, 2006-09-19
Bonds
The perceived risk of owning bonds based on Thailand's debt rose today, according to data compiled by Credit Derivatives Research LLC. The cost of buying credit-default swaps based on Thailand's bonds jumped as high as $75,000 from $36,000 yesterday, said Tim Backshall, a strategist at Credit Derivatives Research in Walnut Creek, California. The price was $54,000 this afternoon, he said. Credit- default swaps are financial instruments based on bonds and loans that are used to speculate on an increase or decrease in indebtedness. The contracts pay an investor $10 million in the event of a default during the next five years. Yield premiums on Thailand's 7.75 percent bond due in April 2007 compared with benchmark Treasuries rose 2 basis points to 60 basis points, the highest in a month, HSBC prices show.