[KUALA LUMPUR] The baht rose along with an exchange-traded fund tracking Thailand's shares following the death of King Bhumibol Adulyadej, the world's longest reigning monarch.
"The key will be to see a smooth transition of power to the new king," Tony Hann, the head of equities at Blackfriars Asset Management in London, said after the death was announced on Thursday evening in Bangkok. Mr Hann holds a greater share of Thai stocks in his portfolio than in the MSCI Emerging Markets Index.
"If that occurs, then I think the recent setbacks provide a good entry."
The baht rose 0.6 per cent to 35.390 per US dollar as of 5:50am in Bangkok, heading for its first two-day gain this month. The local stock market had rebounded with the currency on Thursday, closing higher before the king's death was announced, while the iShares MSCI Thailand Capped ETF climbed by the most since February in the US.
Earlier in the week, Thai assets had tumbled after the royal palace said Sunday that King Bhumibol's health was "unstable".
Thailand's government called on the nation to avoid "joyful events" for 30 days, to dress in mourning for a year and pray for the king's soul to protect the nation. It also signalled that the 88-year-old king's only son will take the throne.
King Bhumibol was a symbol of unity in a country rocked by 10 coups during his seven-decade reign, but had been ill for years, making limited public appearances and spending most of his time in the hospital. Crown Prince Maha Vajiralongkorn, 64, doesn't enjoy the same adulation.
The baht has declined 1.4 per cent this week, set for its worst loss since September 2015. The cost to insure the nation's debt rose 5 basis points to 106 basis points on Thursday in New York, completing a 23 basis point increase in three days that was the steepest increase in more than three years, according to CMA data. The Thailand ETF climbed 2.7 per cent to US$68.54 in New York, trimming its loss this week to 6.9 per cent.
"The uncertainties and political risks have been more or less priced in," Margaret Yang, an analyst at CMC Markets in Singapore, said by phone after the news. "We may still see some panic selling but I don't expect this to last for very long. Eventually smart money will flow in to support the market."
Thailand's SET Index has fallen 6.1 per cent this week, with 30-day volatility on the gauge climbing on Wednesday to the highest level since January. The baht reached the lowest since January and at one stage was heading for its worst week in a decade.
The SET rose 15 per cent in the first nine months of the year, the most among South-east Asia's major gauges after the Jakarta Composite Index. Stocks entered a bull market in July and reached the highest level in 15 months in August as economic growth accelerated and emerging-market assets rallied.
Thailand's banks and the stock exchange will open as usual Friday.
"We will open as usual unless they subsequently ask us to close," Stock Exchange of Thailand president Kesara Manchusree said late Thursday by phone from Bangkok.
Equities had also been aided as stimulus measures to help shield the country from China's economic slowdown made the nation's shares a haven for overseas funds. Foreign investors have poured US$3.8 billion into Thai equities this year, the biggest inflow in South-east Asia, according to data compiled by Bloomberg.
"Thailand's economic fundamentals remain unaffected, which should help it to weather this storm," Jingyi Pan, a Singapore-based strategist at IG Asia Pte Ltd, said by e-mail before the announcement. "The military government which has overseen the economy during a period of increasing GDP growth, could help to guide the country through the period."
Global funds pulled more than US$950 million from Thai bonds in four straight days of selling, heading for the largest weekly outflows since May 2013. The nation's 10-year government yield rose this week to 2.32 per cent, the highest since January.
The nation's bond market had been struggling even before the king's health spurred further declines, as higher oil prices threatened to spur inflation and prompting traders to price in chances for a Bank of Thailand interest-rate increase.
Thailand's sovereign notes have slumped 2.1 per cent in the past six months, compared with gains of more than 6 per cent in India and Indonesia and a 2.9 per cent advance in Malaysia.
South-east Asia's second-biggest economy may grow as much as 3.5 per cent in 2016 from 3.2 per cent last year on the government's accelerating spending, according to the National Economic and Social Development Board. Prime Minister Prayuth Chan-Ocha, who took power in a May 2014 military coup, has issued a series of economic stimulus measures valued at more than 645 billion baht (S$25 billion) since September 2015 to help shore up local demand.
Soo Hai Lim, investment director at Baring Asset Management (Asia) Ltd in Hong Kong, says there's a potential buying opportunity.
"A lot of people are nervous about the situation," he said. "It is something that investors cannot dismiss outright but with the military in charge, the situation in Thailand should be manageable. Quite a number of companies are still delivering quite good growth despite the challenging macro economic environment. This incident is unfortunate but it's something we're aware of. The king has been sick for a while."