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Big money trying to flee small markets crushes Asian stocks

[SINGAPORE] By mid morning in Bangkok, it looked bad - but the kind of bad that traders have seen before in this coronavirus bear market.

Then it got worse. Intensifying selling on Thursday afternoon took Thailand's benchmark SET Index down as much as 12 per cent, its steepest drop since 2006.

Circuit breakers triggered trading halts from Bangkok and Manila to Jakarta and Karachi as Asia's emerging markets struggled to cope with an exodus of foreign capital. For Rainer Preiss, equity chief investment officer at the Global CIO Office in Singapore, it's an unpleasant reminder of how fast things can fall when everyone rushes to the exits at once.

"People have come to a realisation that they were on the wrong side of the market," said Mr Preiss. "People should have listened to the medical experts rather than the economists, and realised that they were holding the wrong assumptions about earnings."

Thai stocks saw the most amount of foreign outflows among South-east Asian economies this quarter, with international investors yanking US$2.2 billion from the nation's equity market - its worst since the three months ending December 2018. In total, foreign investors have withdrawn more than US$4 billion from South-east Asian stocks.

The selloffs came as rapid spread of the coronavirus continues to roil global markets even as central banks around the world have cut rates, while governments have enacted fiscal measures to sustain growth. South-east Asian nations have pledged more than US$22 billion collectively in stimulus, lowered benchmark rates and made the stock market structures friendlier for investors in a bid to counter the economic damage from the spreading pandemic.

"We want to see more concrete, coordinated response from global leaders to combat the virus," said Kerry Goh, chief investment officer at Kamet Capital Partners Pte. "There are doubts that Trump has a good handle on this. We need to see real, possibly larger, numbers of infected populations and transparency."

South-east Asian equities are now trading near their lowest in 14 years relative to global developed peers. The MSCI Asean Index's valuation of 12 times estimated earnings for the next one year is now below two-standard deviations of its 10-year average, data compiled by Bloomberg shows.

Thailand's SET Index closed down 10.8 per cent on Thursday to levels last seen in 2012, even though the economy has grown about 30 per cent since.

"It's capitulation, investor aversion and selling at any price," said Alan Richardson, a fund manager at Samsung Asset Management. "Capitulation is driven by fear the global economy will stop in order to end the Covid-19 pandemic."

Asian investors were previously focused on the recovery in China as it gets back to work, but the new fear is demand destruction caused by developed economies slowing to stop the further spread of the Covid-19 pandemic, Mr Richardson said. "So back to work in China isn't meaningful if the end market is not functioning," he said.

The stock market plunge was particularly violent Thursday after US President Donald Trump significantly restricted travel from Europe for the next 30 days and stopped short of offering a detailed economic rescue package. The South-east Asian economies' heavy reliance on tourism and open capital accounts didn't help when everyone wanted out.

Currencies in the region were also hit hard on Thursday. The Indonesian rupiah led a decline, plunging 1 per cent against the US dollar, while the Philippine peso and the Malaysian ringgit each dropped more than 0.5 per cent.

"The EU (European Union) travel ban from Trump could have tipped" markets over, said Mr Preiss of the Global CIO Office.