Asia’s stocks gain after a lesson from Thailand

Asian emerging stock markets rallied Wednesday as central banks in Malaysia, the Philippines and Indonesia said they wouldn’t follow Thailand’s move to restrict foreign capital inflows.

Many of the markets failed to recoup all of their losses suffered Tuesday, after Thailand’s surprise decision. But analysts were encouraged that investors quickly returned.

Thailand late Monday slapped controls on foreign investment, in a move the government said was necessary to slow capital inflows that were pushing up the Thai currency, the baht. The rising baht was boosting the prices of Thai exports.

But investors’ reaction to the capital controls was to flee Thai stocks. The market’s benchmark index plummeted nearly 15% on Tuesday and fueled selling across the region.

Late Tuesday the Thai government backtracked somewhat, saying the investment limits wouldn’t apply to stocks.

The Thai market index surged 69.41 points, or 11.2%, to 691.55 on Wednesday, regaining about two-thirds of Tuesday’s decline.

Malaysia’s main market index gained 1.5% on Wednesday after losing 2% on Tuesday. The Indonesian market rallied 1.7% after falling 2.8% on Tuesday. South Korea’s market was up 1% after a 0.4% drop the previous day.

Tuesday was “a valuable lesson in telling the emerging markets what not to do,” said Raymond Tang, who manages $1.7 billion at CIMB-Principal Asset Management in Kuala Lumpur. Other countries won’t follow “unless they want to send the economy back 10 years.”

Central banks in Malaysia, the Philippines and Indonesia responded to the rout in Thailand by saying they wouldn’t use capital restrictions to try to control their currencies. That helped restore confidence in the region, analysts said.

Still, the decision by the new Thai government, which was installed by a military coup in September, may continue to haunt that country’s markets, some analysts said.

“Foreign investors will now be far more wary of investing in Thai financial markets,” said Kim Eng Tan, an analyst at Standard & Poor’s.

Many Thai individual investors were furious with the government.

“Foreign confidence is gone,” said Kongkarn Keerativitayoros, a 35-year-old Bangkok investor. “Today you see a market rebound, but what about tomorrow? Who knows if anyone would impose crazy measures and hurt the market again.”