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SET sheds another 2.7% on FBA


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Extracted from the Bangkok Post: Bangkok Post




Thai stocks dipped 2.69% yesterday as investors reacted negatively to the amendment of the Foreign Business Act, which the cabinet has approved in principle. The Stock Exchange of Thailand index closed at 616.75 points, down 17.07 points, in trade worth 21.8 billion baht. Foreign investors were net sellers of 274.78 million baht in securities and local institutional investors net sellers of 405.34 million baht. Retail investors made net buys totalling 680.13 million baht.


Kitti Hamnilrat, senior vice-president of AYS Securities, said market sentiment was very poor as investors were worried about changes in foreign ownership structures at companies large and small.


Investors remain uncertain whether the foreign ownership structures of many listed companies will change or not under the revisions to the FBA, which was passed originally in 1999 and has been in force since March 2000.


''This prompted several investors who didn't understand this issue to dump their positions, particularly blue-chip stocks, to reduce risks,'' Mr Kitti said.


''Large-cap stocks get hurt first because they have high foreign ownership ratios.''


According to research by Phatra Securities, foreign investors own 35% of the outstanding shares of SET100 companies and more than 60% of their free floats.


''If they are to quickly reverse their net buying of the past two years, we don't believe there is sufficient demand from local investors to absorb this, even at the current low prices,'' the report said.


Sittidej Prasertrungruang, an analyst at Seamico Securities, said he was also concerned about the consequences of political instability in the wake of recent violence in Bangkok, as ratings agencies such as Moody's and S&P would possibly revise down the country's credit rating.


Investor fears about new bombings or other serious incidents still persist as the security problem has yet to be addressed.


To exacerbate matters, foreigners remain concerned about the impact of the capital controls announced last month by the Bank of Thailand, which will affect their investments in bonds and mutual funds, particularly property funds.


Patareeya Benjapolchai, the SET president, said most listed companies were on the FBA's List 3, which was affected the least.


However, she said there were 15 listed companies on Lists 1 and 2, in the telecommunications, property and resources businesses, considered highly sensitive to the country's security. Foreign investors will be limited to holding only 49% of the shares in companies in these sectors.


''We expect these 15 listed companies may face a shareholding restructuring,'' she said. ''The government will give them two years to restructure themselves, so investors should not panic as the impact will not happen immediately.''The SET called for more clarification of restricted businesses in Lists 1 and 2.


Matters are expected to become clearer when Deputy Prime Minister M.R. Pridiyathorn Devakula meets with foreign chambers of commerce today to explain the changes in the law to them.


''When there are new things or changes, the market will react strongly as investors don't understand them well. That's why the authorities have to explain and communicate with them,'' Ms Patareeya said.

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