Why is it that Xmas always gets manic around the office? I really do feel sorry for traders in Bangkok who woke up on Tuesday. “Whaaaaad de fuuuuuug????” You could almost hear them and since then it has been phone call after phone call after phone call to figure out exactly how this is going to play out. Then yesterday another mini bombshell dropped when the controls were ‘relaxed’ for equity market investments which caused another round of phonecalls, meetings, etc. How many people (especially bond traders) now wish they hadn’t gotten rid of Thaksim? Oooh many many I am sure…

But whatever it is, I have been reading a lot in the blogosphere comparing this to Malaysia’s currency controls. Let me clarify this for my readers. The Thai controls are not that similar to Malaysia’s. These are designed to prevent the Baht from appreciating (whereas Malaysia’s controls were designed to prevent the ringgit from depreciating). Also, unlike Malaysia it is not an outright prohibition (it is actually a tax) and most importantly we discovered yesterday that equity market transactions are not subject to this rule. Having said that, currency controls are currency controls and by definition they are heavy handed (the usual way to manage currency strength is through setting interest rates). Foreign investment will be seriously affected and the general view (which I agree with) is that for a market that depends so much on foreign investment (about 40% of the thai stock market is owned by foreigners) this is a heavy heavy blow.

Okay so much for the economic “analysis” (I’ll leave the more in-depth stuff to the experts). As traders we must realise a) that this is an emerging market and b) governments aare not as good at managing their economies as their counterparts in the West. Therefore it is likely that something like this will happen every few years, which is why long term portfolios spread their risk in different investments more widely than short term portfolios.

Here is my two cents: I think that this will take the shine off emerging market economies as investors wake up to the fact that country risk exists and is real (India, Pakistan and Indonesia were also affected and Malaysia would also suffer if it didn’t have so little foreign liquidity in the country to start with.) Negative sentiment will spread like a contagion and the big money will punish several other countries as well as Thailand by taking its business elsewhere.

But when the tigers get weak, I and other value players will be there circling slowly like vultures…… can u smell the fear? come to me ..bwah hah hah hah…