How to prepare for the year of uncertainty

We expect investors will continue to be dogged by these problems this year, therefore your investment planning has to focus more on flexibility.

The main concern remains dual deficits in European countries (especially the so-called PIGS – Portugal, Ireland, Greece and Spain). Without a solution here, the euro zone is in danger of falling into recession and seeing credit rating agencies further downgrade its sovereign debts.

The global impact of the euro crisis has included significant drops in export numbers (especially from emerging countries) and liquidity tightening of international European banks, which operate in the US, Asia and Africa.  

The Japanese and US economies still show no sign of significant improvement. Bubbles in the US property market, as well as high unemployment, will take a long time to solve.

At home, the Thai interest rate had been on an upward trend for the past 1-2 years in order to control inflation. Since inflation has slowed recently, it is expected that the interest rate for the next 3-6 months will be lowered, before rebounding in the second half of 2012, following global economic recovery. However, unexpected economic shocks could lead to economic slowdown and a continuously lowered interest rate until the end of 2012. 

As 2012 will be a year of uncertainty, investors should focus on greater flexibility and diversification for their assets. For fixed income investments, you should diversify your portfolio into both short-term (3-6 months) and long-term (more than 1 year) deposits and mutual funds in order not to lose opportunities of better returns in changing economic scenarios.

The outlook for higher-risk investments is clearer. Right now the global equity markets are cheap. Therefore you should invest in regions that have fewer economic problems but maintain high growth. For investment in stocks, I still recommend Asia as the top-pick region and China as the top-pick country. Stocks in developed markets are not recommended due to significant factors of uncertainty. For commodities, the only asset I recommend to investors is gold. In the short term, the gold price could correct to lower than US$1600 per ounce, as inflation concern is released. However, there is still high demand for gold and the long-term outlook looks promising. 

This year, constantly adapt your investment strategy to suit your needs, or else consult your investment advisors to make sure that changes to your strategy are implemented quickly and competently to make the most of 2012’s volatile conditions.

Finally, I wish all readers a prosperous year with a wealth of possibilities.

 

Picha Ratanatam is head of Wealth Management at Tisco Bank. He can be reached via www.tiscowealth.com