With relieving on covid-19 situation, SCB WEALTH HOLISTIC EXPERTS is back to serve and enhance clients' portfolio management. SCB CHIEF INVESTMENT OFFICE (CIO) suggests five portfolio management tactics to tackle high inflation and rising interest rates. During periods of market volatility, investors should accumulate high-quality bonds and diversify their exposure to private assets, structured notes, and ESG stocks. As a result of the reopening of the country, SCBS forecasts 3.4% growth in the Thai economy this year, fueled by the country's reopening and expects the SET to fluctuate between 1,550-1,750 points with a year-end target of 1,650 points. SET-listed companies strong profit and undervalued like banks and food and beverage-related are recommended
Dr. Yunyong Thaicharoen, Senior Executive Vice President and Chief Wealth Banking Officer of Siam Commercial Bank, noted that during the volatile market, SCB WEALTH prioritizes in providing holistic advisory services to HNWI clients by providing investment solutions and managing asset allocations in all circumstances. The primary objective is to build a powerful brand that focuses on wealth planning through Wealth Relationship Managers, Investment Advisors, and Product capabilities that meet all investment goals and customer requirements. SCB Wealth features a Chief Investment Officer (CIO) and Investment Office and Products Function, comprising veteran fund managers, economists, strategists, securities analysts, and investment planners that are professionals in offering wealth management solutions. These teams operate in tandem to monitor financial and investment market situations in order to design product selection methods and allocate investment assets, while also being able to provide timely advice and tailor investment portfolios over changing market conditions. The Estate Planning and Family Office is a consulting center that focuses on family asset and inheritance management for high-net-worth individuals, with an emphasis on providing initial comprehensive tax advice related to family property management and asset transfer planning from generation to generation. The office collaborates closely with SCB Securities Co., Ltd. (SCBS) to provide in-depth analyses of Thailand's listed firms. The quality of information is essential to the success of financial and investment transactions, including the creation of investment products for example, Structure product and Private Asset that fulfill consumers' expectations at all stages. It is therefore a crucial factor in enhancing SCB WEALTH's capacity to build wealth for clients in a sustainable manner.
Sornchai Suneta, Executive Vice President & Head of the Investment Office and Product Function and Chief Investment Office, Siam Commercial Bank, revealed that stubbornly high inflation and an economic downturn pose a threat to the global economy. This may put several countries in danger of falling into economic recession over 2023-2024, with the following three primary factors influencing the global economy and financial markets:
1) Supply chain disruption: Several of the world's largest economies returned to normal economic operations as they were prior to the COVID-19 outbreak, only to find that supply chains have been interrupted, leading commodity prices to rise. At the same time, labor supply shortages persist, leading wages to continue rising and impeding manufacturing and service sector recoveries.
2) Prolonged geopolitical confrontations, such as the war between Russia and Ukraine or tensions between the western democratic world and the socialist world, resulting in different forms of constraints, including political, policy, economic, and financial sanctions. These factors cause energy and food prices to continue to increase, which tends to prolong high inflation as well.
3) A sudden adjustment in monetary policy following high inflation will tend to be extended, particularly accommodative monetary policies that were previously employed worldwide. In order to stimulate the economy for an extended period of time, a widespread policy of low interest rates and cash injections have been employed. Such efforts contribute to global upward pressure on asset values. When inflation rates have begun to rise and persist, central banks around the world were compelled to tighten their monetary policies by increasing interest rates and withdrawing liquidity.
In terms of investment outlook implications, prolonged high inflation will result in a cycle of rising interest rates continuing during 2022 - 2023 and directly affect the global financial market through an increase in bond yields, but also a decline in returns from global stock markets, particularly long duration equities focusing on high revenue growth but lacking short-term cash flow support. It will also boost market volatility for speculative assets.
SCB CIO suggests the following five portfolio management measures to counter high inflation, harsh and rapid interest rate increases, and volatile global financial markets:
1) Build income streams by accumulating high-quality bonds: The consequences of the prolonged Russia-Ukraine war on oil and food prices will continue to keep inflation rates high and bond yields rising. However, as inflation rates show signs of slowing down, the accumulation of investment-grade bonds can generate a stable income stream for portfolios.
2) Diversify risks across non-directional products to manage portfolio volatility and enhance returns. Using market timing to invest in assets that move in accordance with the market during times of uncertainty induced by war and interest rate hikes may increase portfolio volatility. Investing in private assets will give stable returns and reduce portfolio volatility to mitigate these risks. Investors can diversify their risk exposure by investing in private equity, private credit, and private real estate.
3) Reduce downside risk using structured notes: For investors seeking to hedge their positions, investing in structured notes provides an alternative solution. SCB CIO offers a range of product options, including KIKO and Equity-Linked Notes.
4) Ignore short-term volatility with thematic investments: Even though the global economy tends to slow down in accordance with economic cycles, there are still a number of industries and businesses that can generate sustainable revenue and profit growth over the medium and long-term, such as stocks in ESG industries (Environmental, Social, and Governance), particularly those involving the theme of Renewable Energy & Decarbonization.
Regarding investment strategies for Q322, SCB CIO maintains a neutral stance on equities in the developed market group and US stock markets. Their operating results continued to recover, but inflation and a rise in bond yields are the primary factors affecting them. Due to the prolonged effects of the Russian-Ukrainian War and the European Central Bank's interest rate hikes, SCB CIO maintains a slightly bearish stance on European markets. After progressive re-openings and sustained stimulus measures, including a lower risk of inflation and interest rate hikes in other nations, emerging markets, particularly the Chinese economy and equities, continue to hold a relatively optimistic outlook. For Thai and Vietnamese stocks, we have a slightly optimistic outlook due to the benefits of their reopening. However, in 2H22, Thailand and Vietnam will see impacts from interest rate increases. Moreover, bond yields are projected to increase. Due to the consequences of rising bond yields, the outlook for Asian REITs have been adjusted to neutral. With inflation risk management, we adjust commodity prices to positive, particularly in the food industry, whose supply are tightening from the effects of the Russia-Ukraine war and food export bans in a number of nations. On high oil prices, further upsides are likely to be curbed by recession concerns.
5) Utilizing current assets to increase returns is an alternate investment approach that the SCB CIO is willing to promote to investors, such as using existing stocks or investment units as collateral for a Lombard investment loan in order to enhance future investment returns.
In his assessment of the Thai stock market for the second half of 2022, the Managing Director of SCB Securities Co., Ltd.'s Research Group, Sukit Udomsirikul, finds that the reopening of the country will contribute to a 3.4% economic growth this year, despite the threat to domestic demand posed by persistently high inflation and rising interest rates. In the worst-case scenario, GDP should increase by a minimum of 2.9%. The influence of negative sentiment in US and China stock markets mean the second half of this year is not likely to be a buyer's market. As a result of Thailand's reopening, profit for listed companies as a whole will continue to rise, with a modest impact of inflation and interest rates on market segment.
The operating results of firms listed on both the Stock Exchange of Thailand (SET) and the Market for Alternative Investment (MAI) in the first quarter of 2022, showed a total net profit of 284 billion baht, an increase of 11% YoY. Industries in which profits grew included Energy and Petrochemicals (15%), Real Estate (14%), Medical (331%) and Electronic Components (46%); profit fell however, in Agriculture (54%), Automotive Parts (4%), Insurance (78%) and Packaging (4%).
SCBS believes SET fundamentals will remain strong in 2022-2023, with earnings per share (EPS) likely to increase by 10% annually on average. Segments whose earnings per share have returned to pre-COVID-19 levels are Banks, Petrochemicals, Commerce and Tourism. SCBS expects the SET Index to fluctuate between 1,550 and 1,750 points and has set this year's SET target at 1,650 points, based on the assumption that the index will not fall as precipitously as it did during the pandemic because impact on profit will be less severe. Risk factors jeopardizing profits of listed companies in 2H22 include: 1) energy and raw material costs, which will impact the Transport and Construction Materials and 2) a rate hike by the Monetary Policy Committee (MPC), which may impact the Tourism, Food, Commerce and Power Plants. However, the Thai stock market will see its nadir in the third quarter as the US Federal Reserve has raised interest rates dramatically and China is managing its coronavirus crisis stringently. The trajectory of operating results of publicly traded firms is clear, the country's reopening supports the market and inflation seems stable. The transfer of foreign capital, the delayed reopening of China and the Russia-Ukraine War pose additional threats that must be monitored.
"We utilize a bottom-up approach to forecast stock valuations and industry expansion. We set a SET Index target at 1,650 points based on the current economic climate. Banking, communications and food are segments that will be outperforming fundamentals, while transportation, hospitals, electronic components, real estate and tourism will underperform fundamentals. We have used the bear case valuation as a key buying point, with a margin of safety of 5% or below 1,600 points from the current level. We see the SET Index fluctuating between 1,550 and 1,750 points," Sukit stated.