Thai stocks jumped 11.2 percent Wednesday, recovering from a historic fall that shook regional markets and sparked concerns over another Asian financial crisis.
The Stock Exchange of Thailand's benchmark SET Index ended a tense day at 691.55 after it tumbled nearly 15 percent the day before in reaction to new rules restricting foreign investment aimed at stemming the baht's surge.
In the wake of the turmoil, Thai authorities late Tuesday lifted controls imposed just 24 hours earlier on stock investments while leaving curbs on foreign investment in bonds and other debt instruments.
The Stock Exchange president, Patareeya Benjapolchai, praised the about-face as a "positive action" that would restore investor confidence by showing that authorities moved swiftly to solve a problem.
"We believe the market will recover, though it will take awhile to match the losses," she told reporters.
Despite Wednesday's recovery, uncertainty continued to stalk the country's financial markets.
Analysts said the back-flip would hardly instill confidence in the nation's new, military-backed regime and could damage longer-term prospects of the equity market.
"Thailand's prior strength was the freedom of its market and the transparency with which the market was run," said HSBC's Frederick Neumann. "Even if they lift the controls, that's been lost now. They've lost credibility in the market, and that question now is will it happen again?"
Regional markets recovered amid relief that Thai authorities had relaxed the controls that many investors viewed as overly drastic. Stocks in Hong Kong, South Korea, Indonesia and Malaysia all recovered from their drops Tuesday.
Indonesia's Finance Minister Sri Mulyani Indrawati said the impact of Thailand's moves on regional markets was likely to be temporary.
"I am optimistic the effect of the (Thai) policy is only short-term," the minister told reporters.
On Tuesday, the Thai stock market had its worst day ever, with the benchmark stock index tumbling as much as 19.5 percent before recovering some to close down 14.8 percent.
The plunge came after the Bank of Thailand announced late Monday tough measures to clamp down on speculative inflows that have lifted the baht to nine-year highs. The measures required all banks to hold in reserve for one year 30 percent of capital inflows that aren't trade- or services-related, or repatriation of Thai residents' investments abroad.
Also, foreign investors must pay a 10 percent penalty unless they keep funds in the country for a year.
Effectively, the central bank's new rules meant that if a foreign investor allocated the equivalent of 100 million baht to the Thai bond market, the investor could only buy 70 million baht of bonds, while the remainder would be withheld by the central bank, earning no interest.
The baht has weakened some since hitting a nine-year high of 35.09 per dollar Monday. On Wednesday, the dollar was trading at 35.60 baht, down from 35.75 late Tuesday.
Analysts downplayed worries about another regional crisis, arguing that the region's economic health is much better than it was in 1997.
"It's a mistake to compare it to '97," said Hak bin Chua, an economist at Citigroup in Singapore.
Ten years ago, Thailand had a huge current account deficit, whereas now it has a surplus. It also has nearly $65 billion in foreign currency reserves, far more than it did in 1997. And the baht, which plunged 10 years ago, is now considered too strong.
Still, Chua called the central bank's capital controls "a policy error" and said that if this is the way Thailand's interim government, installed after a military coup in September, is going to operate, "it doesn't look very encouraging for investors."