16 feb 2004

Back in November, when the stockmarket index began to jump around like a tree frog, the Stock Exchange Commission (SEC) floated the idea of limiting the extent brokers could allow customers to play the market without putting up the money first. The SET index lurched 4 percent downwards in one afternoon. The prime minister quickly intervened. He said SEC’s action was damaging “investor confidence” SEC backed down. The index recovered.

A few days later, some stocks were going up and up like a Mars probe. SEC suspected ramping and again proposed tightening of regulatory controls. The SET index dropped 3 percent in a day. Again the prime minister came out to scold SEC for “distorting” the market. SEC backed off. The index staged a recovery.

Last month, the outbreak of bird flu prompted another panicky drop on the SET index. In his weekly radio address, the prime minister chided investors for being so silly. He assured them the index would go up and up. Midweek he repeated these assurances for news media. Sure enough, the index rebounded with the most enthusiastic one-day jump for a long time.

But the bird flu did not go away. An international health official carelessly suggested it showed signs of getting worse. Another SET lurch. Another reassurance. This time, the prime minister pitied investors for selling off shares they would have to buy back later at a higher price. In other words, the index would go up and up.

Last year, the prime minister showed similar interest in the exchange rate. He repeatedly told reporters that the baht should be stronger. The central bank governor politely disagreed. Some academic economists pointed out that currency markets are so volatile at present that such predictions are difficult. But the prime minister persisted, offering figures for what rate he thought the baht should be.

It is unusual for a prime minister to show in public such intense and detailed interest in the trend and level of financial markets. Of course all premiers would like to see their countries’ major economic indicators showing positive trends. They often give statements of a general, feel-good nature about future prospects. But it is difficult to recall previous Thai premiers trying to predict the level of the currency or the long-term trend of the stockmarket. And it is hard to find examples in other countries of premiers being so persistent or so exact.

When the prime minister was talking up the baht, rumours flew around that the Shin group of companies had taken a position that would benefit from a rising baht. Of course, such rumours are just rumours and probably have absolutely no basis. But when it comes to the stockmarket, the information is publicly available. The prime minister’s daughter, brother-in-law, and son are ranked 2, 3, and 4 among the largest investors on SET. According to rough estimates, the companies in the Shinawatra group account for almost a tenth of the market’s total value.

Again this is unusual. It would be impossible to identify a former Thai prime minister who had anything close to such interests. It would probably be impossible to find any other country in the world where something similar is true.

If we widen the scope a bit, the close ties between politics and the stockmarket become even more impressive. The Maleenon family of the deputy interior minister has the single largest family holding on SET. The Bodharamik, Jeungrunruangkit, Thepkanchana and other ministerial families are also significant investors. Together, the families of the cabinet members, their advisors, and close business associates account for a significant chunk of the market. Again, it would be hard to find countries where the same were true.

Recently a Vanderbilt University study found that companies which were “politically connected”, meaning there were close ties to people in government, accounted for 42 per cent of all stockmarket value. Only one country beat Thailand on this list and that was Russia where the conditions over the last decade have been highly unusual. No other country came close.

The prime minister is a strong believer in will-power. He predicts a 6 per cent growth rate and behold, we get a 6 per cent growth rate. His numbers are better than scratching on the bark of a tree. But in the case of the SET index, he must know there is a degree of circularity. If he predicts a trend then it provokes many people into thinking it worth taking a bet on this trend, and that alone can make the prediction come true.

Of course, the prime minister may claim that boosting the baht value or the GDP rate is good for the economy, for the nation, for everybody. But in the case of the SET index, that it not entirely clear.

As part of Thailand’s capital market, SET is still a minor contribution. The banks, however devastated, are still more important. Now bonds have also come into play. Only a fraction of even the medium or large-scale companies are listed. Boosting the SET index does not help “the economy” much at all.

SET is important to three groups of people. One of these is the international investors who play markets across the globe. For them, SET is a very minor market which is sometimes interesting because it is so small. When you need to get the numbers up for the year-end bonus, it is wonderfully responsive.

The second group is the “retail investors” but they are still rather few in number and rather modest in aggregate. The third and most important group consists of the tiny number of people with large stock holdings, many of whom are closely associated with this government.

The prime minister says he is not greedy and is rich enough already. Out of respect, we should believe him. But politics is an expensive business.