SCB CIO recommended its Moderate Asset Allocation portfolio with YTD return of 14.7% and no negative monthly return and assessed economic and investment trends in 2022. SCB CIO expects waning yet persisting impacts from COVID-19 and tightening fiscal and monetary policies against a backdrop of slowing developed economies and recovering emerging economies. Amid such mixed sentiments, investment in highly immune countries and businesses such as US and European stocks is recommended, especially in quality growth stocks, with Vietnam's stock market being ASEAN's top pick. To better capture resilient industries and new trends bringing transformation, SCB CIO also suggests Super Investment Themes for long-term investment in industries with continuing growth and Futuristic Investment Themes for futuristic industries demonstrating high growth potential. The Super Investment Theme features Renewable energy & decarbonization , healthcare & health tech, and fintech stocks, while the Futuristic Investment Theme features aerospace and space exploration groups and metaverse groups.
Sornchai Suneta, Executive Vice President of SCB Chief Investment Office at Siam Commercial Bank, mentioned that the SCB CIO's Moderate Asset Allocation portfolio performance YTD recorded at 14.7% (as of December 13th, 2021) with no monthly negative return. The outstanding and consistent return is driven from timely and high conviction asset allocation strategy and product recommendations from a group of experts in the office. In 2021, our positive views on developed markets and thematic industries, including the US and European and Semiconductor sector (16.5% YTD return), have paid off and outperformed other asset classes. For emerging markets (EMs), Vietnam equity markets, our EM top pick, has also outperformed its peers with YTD return of 27.6%. For Thai equity markets, SCB CIO's selected private fund delivered 20.5% YTD return, compared with 12.8% from SET index's total return. Moreover, the introduction of private asset to our portfolio have not only enhanced our returns to achieve our goal on no negative monthly return, but also reduce portfolio's volatility. According to our latest information available (October 2021), our selected private equity and private debt funds delivered YTD return of 16.5% and 7.0%, respectively.
In addition, over markets' sideway periods, especially for Thai equity markets, in 2021 we have recommended our clients to invest in structure note products, KIKO (derivative instruments with stocks as underlying assets), which delivered a decent return of 8-10% per annum.
Dr. Kampon Adireksombat, First Senior Vice President of SCB CIO, revealed that SCB CIO has assessed four key economic and investment trends in 2022 and anticipates that:
1) The impacts of COVID-19 pandemic is waning yet persisting. Despite pandemic impacts tending to subside, they will not completely disappear. These effects will likely result in a lesser degree of uneven economic recovery, compared with those in 2019-20. Following some recovery in 2021, developed economies will begin to slow down in 2022, while emerging economies will begin to recover. However, it is expected that recovery for each business sector will vary, especially those affected by restrictions such as international travel.
2) Slowly tightening monetary and fiscal policies. It is likely that the US Federal Reserve will raise the policy interest rate three times in 2022, starting mid-year, with on-going communications to the market to keep volatility in global financial markets, although short-lived, in check. However, central banks in developing countries, especially those vulnerable to inflation and currency depreciation, such as Brazil and Turkey, may need to raise interest rates quickly. Meanwhile, the Bank of Thailand is likely to maintain its policy interest rate at 0.5% for another year to support economic recovery. Fiscal policy in developed economies will begin to see more government revenue-boosting policies, such as tax hikes, but may not be enough to offset the earlier large deficit, causing public debt to remain high.
3) Financial costs starting to rise with the value of the baht becoming stronger, yet more volatile, in 2H22. Bond yields, particularly of developed economies, will tend to increase, yet slowly, in line with policy interest rate hikes. Meanwhile, the baht value against the US dollar is likely to appreciate in the second half of 2022, following a rebound in foreign tourists and the current account balance. SCB CIO expects the baht exchange rate will remain in the 32-33 baht per US dollar range by the end of 2022. Nonetheless, with adjustments of monetary policy in various countries and uncertainties concerning COVID-19 mutations, the exchange rate is expected to fluctuate highly. Therefore, an FX hedging strategy would be essential for those investing in foreign assets.
4) SCB CIO recommends stocks rather than bonds. Investors are advised to focus on highly immune countries and businesses growing well in distressed situations where the impacts of COVID-19 remain and bond yields slowly rise, such as US and European stocks, especially those with quality growth prospects. The Vietnamese stock market continues to be the top pick for ASEAN, despite valuations starting to pick up. Going forward, it is believed that the Vietnam economy and profits of Vietnamese listed companies will likely continue to recover from the recovering export sector. SCB CIO maintains a neutral view on the Thai stock market due to its richer valuation, compared with those of Vietnamese stock market. Thailand economic recovery and the return of foreign tourists are likely to occur in 2H22. To hedge against the risk of longer-than-expected high inflation, investors should consider investing in oil, financial and consumer sectors, while gold is likely to be adversely affected by the Fed's monetary policy adjustments.
SCB CIO Executive Vice President Sornchai Suneta noted that with the economic recovery trend in each country starting to keep pace, thematic investment funds in industries and companies with strong fundamentals and specialized businesses, including businesses that can follow the growth of future megatrends, will play a greater role and interest in global asset allocation portfolios.
In 2022, SCB CIO recommends two major investment themes: 1) A Super Investment Theme, which captures the trend of global investment in Renewable energy & decarbonization and disruptive technology and 2) A Futuristic Investment Theme that captures global investment trends of future industries with high growth potential.
The Super Investment Theme features a long-term investment theme in industries that continue to grow, with three interesting sub-themes, including 1) Renewable energy & decarbonization, such as renewable energy, electric vehicles, and businesses related to energy management and carbon reduction in line with future investment trends supporting the transition of energy focusing on using environmentally friendly energy; 2) Healthcare and Health Tech, especially in the medical technology sector, such as medical devices, following the trend of healthcare and wellness expenditures that continue to increase globally; and 3) Fintech that embraces digital transformation and blockchain technology to offer investment opportunities in companies offering diverse financial services.
The Futuristic Investment Theme highlights investment in future industries demonstrating high growth potential, comprising three sub-themes, namely 1) Aerospace & Space Exploration focusing on the growing trend of aerospace and aviation businesses, space tourism, rocket technology, drones, satellites, climate measurement and forecast, and advanced telecommunication and 2) Metaverse featuring investment in the Internet's next evolution in augmented reality technology, which will bring a variety of growth opportunities, not only limited to social media, but also include business opportunities, related to video games and leisure, e-commerce, manufacturing.