Bear Emerges From Thai Equity Options as Put-Call Ratio Jumps

(Bloomberg) -- Thai stocks’ most expensive valuation in Southeast Asia has fueled a surge in bearish sentiment through option trading.

The number of outstanding SET 50 Index bearish options relative to bullish contracts jumped to the highest level since 2015, with the ratio between the two reaching 2.3 last week, data compiled by Bloomberg show. The last time options activity reached such levels, the benchmark SET index fell more than 20% -- the equivalent of sliding into a so-called bear market -- over the next 10 months to mid-January 2016.

Southeast Asia’s second-biggest economy is forecast to face its worst recession in more than two decades this year after closing its borders in an effort to stem the spread of coronavirus infections. While a gradual reopening of businesses and services has fueled some optimism, the absence of international tourists and weak consumer spending may continue to hurt company profits.

The benchmark SET index traded at 18.4 times its 12-month earnings estimate, after touching a record multiple of more than 19 in June, as a contraction in the economy prompted earnings-estimate cuts. While the key stock index has rebounded 33% from a March low, it has fallen 14% so far this year.

“Many more investors are hedging their equity exposure as the coronavirus outbreak is still raging in several countries,” said Tawatchai Asawapornchai, ASL Securities Co.’s deputy managing director. “Options have become a popular and cheap tool to protect that risk.”

Still, while options activity has climbed, contract volumes remain very small compared with developed markets such as Hong Kong and Singapore, said Tawatchai.

©2020 Bloomberg L.P.