Market down as good US economy drives interest rate fears

After US inflation exceeded targets and increased 4%, global stock markets including Thailand plummeted yesterday with fears of rising interest rates. Almost 144 billion baht was traded yesterday with the market at one point diving down 70 points in the late afternoon before recovering to a 23.72 point loss, closing at 1548.13.

2% is a high rate of inflation so the big numbers sparked fears that the US Federal Reserve will reduce quantitative easing and increase interest rate which decreases the market’s liquidity. The US economy is surging with the Consumer Price Index up 4.2% over last year.

The balancing out of the economy will likely push risky prospects like the stock market down while driving up commodity prices like energy and oil. This may hurt the Stock Exchange of Thailand in the short run, but will likely have long-term positive effects as the SET has a large number of energy stocks that will benefit from the market’s change.

Some long-term investors in Thailand fear quantitative easing and the market’s tightening because it drives away foreign investors which in the past made up 30% of the Thai market. But now foreigners only account for 20% so the negative effect should be much less. However, in the normal inflation range of 1 to 3%, the stock market should have a price-to-earnings ratio of 20 and some experts have downgraded it to 18 now.

Eyeing the US, some experts predict that even accelerated quantitative easing won’t come into effect until the end of the year and interest rates probably won’t rise significantly within the next 2 years. Watching the continued effect of the Covid-19 pandemic and US unemployment figures will be key indicators driving the global market up or down.

Even with the stock market down in Thailand, there’s still some good news as Thai corporations listed on the SET expected to cross the 200 billion baht profit threshold this week, after reporting 180 billion baht in the first quarter of the year, with 55% of the market recording a profit.

SOURCE: Bangkok Post