When inflation is unreliable How to invest


High inflation is a major problem in many major economies in the world since 2022 and as a result, central banks The direction of monetary policy must be adjusted from accommodative to strict. by continuously raising interest rates which came to this time Inflation still haunts major central banks. of the world must have a headache especially the United States and Europe


US inflation and Europe is still higher than the 2% target.

In the United States, investors are starting to see inflation rising at a slower pace. Most recently, in January 2023, headline inflation and core inflation of the US increased by 6.2% and 5.5% year-on-year, respectively. slowing down from December 2022 with an increase of 6.5% and 5.7% respectively. However, in terms of growth from the previous month Headline inflation continues to increase. reflects that US inflation The trend has passed its peak and slowed down. but still higher than the target


The US Federal Reserve (Fed) saw this signal. Consider from the minutes of the meeting for January 31 – February 1, 2023, which has just been released, indicating that most Fed directors agree that Inflation is still above the 2% target and the labor market is tight, so the Fed should continue to raise interest rates until it is assured that inflation is sustained down to its 2% target, which may take some time. for a while


When turning to look at the European economy Inflation remained above the target of the European Central Bank (ECB) as well, and did not see any significant downward signs. Because the labor market is still hot. This is a key factor in keeping service sector inflation strong. This will be a supporting factor for the ECB to continue to tighten monetary policy.


Fed and ECB likely to continue to raise interest rates

As for the SCB CIO, it is viewed that the Fed is likely to raise the policy rate (Fed Fund Rate) by 0.25% in both March and May meetings. Until reaching the maximum policy rate (Peak Rate) at 5.00-5.25% and the Fed is not expected to cut interest rates this year. Because we still see that the chances of a recession (Recession) are quite low this year.


As for the direction of the ECB’s interest rates, SCB CIO has a view that the ECB will continue to raise interest rates as quickly and aggressively as the market expects. It is likely to raise interest rates by 0.50% in March and by 0.25% in May. and began implementing a quantitative easing (QT) policy in March. At its most recent meeting, the ECB raised interest rates by 0.50% and signaled that a further 0.50% increase would be expected at the March meeting. After that, interest adjustments will be assessed based on economic data released. in order to control inflation to the target range of 2%


Overall, both the United States and Europe are still unable to rely on inflation, while in the future, the SCB CIO views that there are still risk factors to watch, such as the Russian-Ukrainian war that marks the 1st anniversary on February 24. 2023 Recently, Russian President Vladimir Putin has just delivered his annual policy statement to the National Assembly. Announced to suspend Russia’s cooperation in the ‘New START’ nuclear arms control agreement with the United States, but has not fully withdrawn from the deal. While Chinese President Xi Jinping Prepare to travel to Russia officially. US President Joe Biden recently visited Ukraine. with a speech to mobilize support for Ukraine For the war that is entering its 2nd year


If after this there is an increase in violence may cause commodity prices to increase Pushing the energy crisis in Europe to worry. creating inflationary pressure once again This will result in major central banks. had to raise interest rates continuously and for a longer time than previously expected


There are also conflicts between the United States and China in three issues: 1. The Korean Peninsula. After North Korea fired a missile on Japan’s exclusive economic zone And there is a military exercise between the United States and South Korea. 2. Taiwan Strait After the president of Taiwan met with members of the Chinese committee of the US House of Representatives. to enhance security cooperation with the US; and 3. China’s launch of a balloon that invades US airspace, and the US is believed to be a Chinese military spy balloon. until the US Department of Commerce Announcing a new round of export sanctions It has targeted six Chinese aerospace firms that the United States believes support its spy balloon program.


If the conflict between the United States and China escalates will affect the global economy through trade, investment and tourism with China. that are more likely to be excluded This will result in a downside risk (downside) to the global economy. Including China increased


US government bonds medium to long term (5+ years) and interesting Investment Grade bonds


amid unreliable inflation and increasing geopolitical risk factors. If investors are considering whether How should we invest in different types of assets? SCB CIO views that US bond yields are likely to increase in the short term. But it is expected to gradually decrease after the Fed stops raising interest rates. The credit spread between corporate bonds and government bonds is at an attractive level. And the chance to increase more than this is already quite low. according to the trend of the US economy expected to slow down but not recession and uncertainty from the Fed’s tightening monetary policy that has decreased from the previous year.


So we still have a point of view. Slightly Positive on US Government Bonds with a long average life (Long Duration) Therefore, it is recommended to gradually accumulate for medium to long term bonds or 5 years or more and have a view Positive on US bonds with an investment grade credit rating Therefore, it is advisable to increase investment.


SCB CIO has a positive view on Chinese and Thai stocks.

for the stock market We see equities globally declining. Because it was pressured by the increase in bond yields of major economies. This trend will continue until the bond yield starts to stagnate and then slows down. We therefore maintain a neutral view on US, European and Japanese stock markets.


In addition to the issue of bond yield, the US stock market There is still the issue of the value of S&P 500 stocks that are starting to return quite expensive. The forward price to earnings per share (Forward P/E) of the S&P 500 has already risen above the 10-year average. down according to the trend of increasing the tax burden of the US business sector, as well as uncertainty on the debt ceiling that put pressure on the US economic outlook as well


As for European stocks, SCB CIO revises its view from Slightly Negative to Neutral because it believes that European economic fundamentals are better than expected. While the European stock market is cheaper compared to the US stock market. and still below average In addition, the stock values ​​of European stock markets have reflected the issue of lowering earnings forecasts of listed companies. However, the chances for the index to increase (upside) are still quite limited. Because the euro tends to appreciate. and concerns about the impact of the risks of the Russo-Ukrainian war that remain to be monitored.


for The stock market that the SCB CIO has a positive view on is the Chinese stock market A-Share. that we have a point of view Positive from the opening of China to support economic recovery In addition, Chinese authorities tend to relax monetary, fiscal, and real estate policies further. especially in the first half of the year while projecting future earnings per share (Forward EPS) of the Chinese stock index tends to be improved stand out from other markets in the region. As the Chinese economy tends to recover led by the service and consumption sectors In addition, the Chinese stock market has continued capital inflows. both from the issuance of more Chinese mutual funds After the Chinese stock market rose Global mutual funds holding less Chinese stocks than they should be and the investment of retail investors with continued good prospects


in partChinese H-Shares and US-listed Chinese stocks (ADRs) we have a view Slightly Positive because the index It also tends to benefit from the trend of opening up Chinese cities. The risk of delisting of Chinese companies from the US stock market has decreased. However, the index has already increased considerably. The value is starting to tighten And began to worry about the issue of geopolitical conflicts to pressure.


for Thai stock market It’s another market that we have a point of view. Slightly Positive due to the recovery of tourism that supports the Thai economy Consumption, driven by the Shop Dee Mee Return program, is expected to increase in the first quarter as economic activities tend to increase during the campaign ahead of the upcoming election in May. Slightly lower than MSCI Asia Pacific, which is an Asia-Pacific stock index excluding Japan. But the growth rate of earnings per share (EPS Growth) in 2023 has an opportunity to grow more prominently.


Asian REITs, interesting alternatives

As for alternative asset classes, SCB CIO views that during the short-term acceleration in bond yields, It is an opportunity to seize the opportunity to accumulate real estate investment trusts (REITs) in Asia or Asian REITs that benefit from the opening of China’s cities. Because considering the value, it’s still worth investing. In addition, the difference between the dividend payout ratio of REITs compared to the yield of government bonds has limited downside.


Last year, REITs faced the situation of accelerating long-term government bond yields as a dragging factor. But this year, this negative factor began to limit. Therefore, in the short term, government bond yields accelerated. Before the Fed’s interest rate stabilization is a time to accumulate REITs, especially Asian REITs.


Historical data shows that during the Fed’s 2006-07 and 2018-2019 Fed halts, Singapore’s REITs rose 48% and 16%, respectively, outpacing the Singapore stock market’s 45% gain. 8% respectively. In Thailand, REITs will benefit from low government bond yields. while the recovery of the tourism sector creates more impetus for economic activity Including Foreign Direct Investment (FDI) into Thailand. also tends to grow Help support REITs revenue to recover and grow. Therefore, holding REITs with recurring income and relatively stable dividend yield at the rate of 5-6% is another interesting option.


Finally, SCB CIO would like to emphasize to investors that No asset class has a consistently good return, therefore, diversification. Invest in a variety of assets It is still something that investors should focus on. in each period may increase or decrease the proportion of investment in certain types of assets in accordance with the environmental factors at that time carefully And do not forget the investment objective whether it is short-term or long-term. If I can do this The investment portfolio will be strong. There is an opportunity to give returns that do not fluctuate too much.

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