Tuesday, August 11, 2020

Predictions of slow recovery make Thai stocks unattractive to local investors

Jun 26. 2020
Samy Chaar, chief economist at Lombard Odier & CIE SA, says the bank prefers not to invest in emerging markets, especially in bank shares, energy or business sectors of the old economy.
Samy Chaar, chief economist at Lombard Odier & CIE SA, says the bank prefers not to invest in emerging markets, especially in bank shares, energy or business sectors of the old economy.
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By The Nation

Foreign equities are becoming more attractive to Thai investors because the Thai economy is unlikely to recover from the Covid-19 crisis any time soon, according to the Kasikornbank Private Banking Group.

Jirawat Supornpaibul, chief of the Kasikornbank Private Banking Group, said on Thursday (June 25) that the economy may start to pick up as the government relaxes lockdown restrictions, but it will take a long time before it fully recovers or returns to where it was in the pre-Covid-19 period. 

Against this backdrop, KBank Private Banking has been diversifying its investment overseas. On shore investments do not look bright due to limited options, which is why the group is shifting investments abroad, he said at a webinar on “Tracking the Recovery and the World after Covid-19”. 

He predicted that the Stock Exchange of Thailand index may rise about 5 to 10 per cent from the current level, but it will be subject to high volatility. Since the economy will recover slowly, the annual returns for Thai equity investment will be between 3 and 4 per cent or a little higher, he said, while returns from bank deposits will be even lower. 

Siriporn Suwannagarn, financial advisory head for the group, said as Covid-19 subsides, the group has cash in hand for about 5 to 11 per cent of its total portfolio and has started using it to invest in global equities and investment funds in both Asia and Europe. The group has also been investing in property funds and gold for use as hedging instruments against risks. 

Meanwhile, Samy Chaar, chief economist at Swiss Private Bank Lombard Odier & CIE SA, said global recovery will look like the Nike swoosh – initial recovery being V-shaped during the reopening of cities before the rate decelerates. He also said that it will take two to three years before the economy can return to pre-Covid levels. Inflation, meanwhile, will be low, interest rates may fall into the negative territory, and the gap between the rich and poor will become wider.

If there is a second wave of infections, then the economy will be in an L-shaped slump for a long time, he warned. 

Risks could also come from trade tensions between China and the US. Also, if many countries bring their fiscal and monetary expansions to an end too soon, then the global economy will go into recession, he said. 

With slow recovery, Lombard Odier reckons that equities and debentures will be more attractive than bank deposits and short-term debt instruments, he said.

Equities must be related to technology, especially digital industry, senior citizens and environment to name a few. 

He also advised investment in gold and government bonds until the end of the year as an insurance against market volatility. 

‘We like equities in US and Asia, especially growth stock associating with new technology, we do not like emerging market’s stocks in particularly bank shares, energy or business sectors in the old economy. We are also interested in debentures and government bonds due to increasing yields,” he said. 

For currencies, he said the Japanese yen was attractive, while US dollar may become weaker as US rates may no longer rise.

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