Bond yields fall as investors seek |low-risk assets and safe havens

Gold prices have increased more than 16 per cent from the beginning of 2016. Bond prices have also risen, prompting negative bond yield, the lowest in 10 years in several countries. 

Thailand’s one-year bond yield has fallen 1.44 per cent, similar to the situation in late 2003, when five-year bond yield went down to 1.84 per cent and 10-year bond yield to only 2.18 per cent. These returns were very low. 

The expectation of the Stock Exchange of Thailand is that if bond yields drop consistently, investors will take higher risks and the market-earning yields and bond yields will be wide enough to offset risk premiums. There will be chance of seeing capital flow into the SET. 

According to ASPS Research, the current market-earning yield gap is calculated at 5.41 per cent, higher than the 10-year average of 4.77 per cent.

This week, the SET Index is expected to see fluctuations, given ongoing pressure from overseas. But the situation may not be as severe as in early January. For example, the crude-oil price plunged to a new low, below the base, in January. 

It’s believed there will be limited impact on the SET Index. Foreign investors’ selling is not expected to build much pressure because of its low level. 

Local institutional investors’ purchases could absorb the foreign sales.

Given these factors, there will likely be limited downside risk for the Thai stock market at the present. However, it will be difficult to see sharp rebounds because of the lack of support from new capital and positive fundamental factors. 

The SET Index this week is forecast to move in a range of 1,265-1,313 points. 

With the current environment, outstanding capital gain is not expected.

Focus on stocks with high dividend yield and regular dividend payment.

From now until February 29, listed companies are required to submit their financial statements and, after that, announce dividend payments. Stocks to be selected into portfolios should have dividend yields of less than 5 per cent. 

Stocks with annual dividend payments include ASK (Asia Sermkij Leasing), TMT (Thai Metal Trade), TISCO (Tisco Financial Group), SC (SC Asset), STPI and TK (Thitikorn). Those with dividends more than once a year include TVO (Thai Vegetable Oil), INTUCH (InTouch Holdings), MCS (M.C.S. Steel) and SPALI (Supalai).

 

Prakit Sirivattanaket 

Vice President

Kasikorn Securities

 

Last week, money markets, capital markets and bond markets across the world moved with high volatility after capital shifts into safe-haven assets. 

Gold prices jumped 7.5 per cent in five days. US 10-year bond yield fell to its lowest point in a year at 1.63 per cent, in contrast of US dollar sales as a result of the US Federal Reserve expected to increase interest rates in a hurry. 

There were also speculations on other currencies, particularly Japanese yen. The Japanese currency appreciated to 112 per US dollar. Most capital went into Japan’s government bonds. On February 9, Japanese 10-year bond yield was in negative territory for the first time in history at minus-0.025 per cent, due likely to the Bank of Japan’s January 29 announcement of a negative interest rate at minus-0.1 per cent and likely further monetary easing. 

The negative Japanese 10-year bond yield reflects over-demand for Japan’s government bonds, one of the safe-haven assets, which could prompt yen carry trade. Some capital may move out of Japan and go into other safe-haven assets like gold or bonds in other countries, including Thailand. Foreign investors were net buyers of Thai bonds worth more than Bt60 billion for the latest 11-13 trading days.

Stock markets, particularly developed ones, across the world plummeted after the Swedish central bank announced a deeper negative interest rate, from minus-0.35 per cent to minus-0.50 per cent, raising investors’ concerns over likely pressure on other central banks and the European Central Bank to adopt negative-interest rate policies, which could have a negative impact on commercial banks. As a result, heavy sales were found in financial institutions in Europe and the United States. 

Developed markets dropped sharply, which delivered negative sentiment to emerging markets.

No sign has been seen of capital outflows. The Thai currency continued its appreciation, to 35.23 per US dollar. Foreign investors moved Bt2.2 billion of capital into Thai bonds. Of the total, net foreign purchase of short-term bonds was more than Bt3.2 billion. 

If the SET Index goes below 1,275 points, it could fall to 1,260 or 1,250.