Bangkok, Aug. 24 – Siam Commercial Bank expects the US economy to slow down in a soft landing manner as inflation continues to slow down, although it will take another 1-2 years to reach the 2% target. share after the performance of most companies in stock markets around the world better than expected including Thai stocks After the politics became clearer
Dr. Kampol Adireksombat, senior director and team leader of SCB Chief Investment Office (SCB CIO), Siam Commercial Bank, revealed that SCB CIO has adjusted his outlook on the US economic outlook. It is expected to slow down in a manageable way (Soft landing) from the previous view that there may be a mild recession. Because inflation tends to slow down continuously. Although it will take another 1-2 years to reach the US Federal Reserve's (Fed) 2% inflation target, with inflation expected to reach the target in 2025, but with the labor market, especially in the services sector, that is still strong Causing the US economy during 2023-2024 to have a manageable slowdown Based on the Fed's latest projection (June 2023), the US economy is expected to grow 1.0%, 1.1% and 1.8% in 2023-2025, respectively, compared to an average long-term growth rate of 1.8%.
However, the SCB CIO viewed that from the soft landing economic trend, combined with the slow downward trend of inflation, As a result, the Fed's rate cuts in this cycle will be smaller and slower rate cuts than previous rate cuts. The Fed expects to cut rates by 100 and 120 bps in 2024- 2025, respectively, which will cause the Fed policy interest rate to remain high at the end of 2025 at 3.4%. Emerging markets, especially countries with slower-than-expected economic and inflation rates Likely to start to see interest rate cuts like China and Vietnam or a halt to rate hikes like Thailand, keeping the wide interest spreads between the US and emerging economies in the next six months.
from the trend of interest rates that are still at a high level while the economy slows down As a result, countries with large indebted companies and households There is a risk of balance sheet recession, which is the state of business and households concerned about high levels of debt. The slow recovery of asset prices or declines, together with the economic slowdown, causes most of the income not to be used for consumption and investment, including no additional borrowing. But focusing on repaying debt to reduce financial burden This happened to the Japanese economy in the 1990s and, most recently, China is one of the countries where the market has started to worry about this issue. Including Chinese asset prices, especially house prices, although recovering slowly, but did not face the problem of falling prices as severely as what had happened in Japan.
Dr. Kampol said that from the perspective of the US economy. With a tendency to be in a soft landing condition, hence adjusting the view on Investment Grade bonds back to Slightly Positive or accumulating. We still recommend avoiding investing in high-risk bonds (High Yield or HY), especially in the Chinese bond market. It believes that the slowing inflation rate coupled with the Fed's stance on halting interest rates and the likelihood of a rate cut in mid-2024 will push both short- and long-term bond yields down. gradually decreasing over the next 6-12 months. There is a tendency to increase the credit risk of the HY debentures. Especially debentures in high-indebted business groups such as real estate in China.
for investing in stock markets around the world From announcing earnings for the second quarter of 2023, most of them were better than expected. The slowdown in corporate sales of goods and services on the U.S. stock market, but better-than-expected results and earnings, or weaker than expected, were large conglomerates in the Nasdaq 100, followed by the S&P500 overall. They are better than small- and medium-sized conglomerates in the Russell 2000. Japanese stocks, sales of goods and services slow slightly. But profits continued to grow thanks to a recovery in domestic demand. travel and the yen depreciated In addition to growing a lot It's also doing better than expected. While the European stock market EuroStoxx600 saw sales and profits shrink. vietnam stock market Profit from sales of goods and services of the company continues to recover slowly. But less than the market expected. and the Thai stock market Sales and earnings were lower than expected. The main drag is energy, consumer goods and real estate.
SCB CIO views that the valuation of developed country stock markets is tight. Began to decline, especially US stocks, Tech group Which has previously recommended switching to invest in volatility resistant stocks (Defensive) At the same time, the view of Japanese stocks has been adjusted to Neutral (Stop Sell or Hold) after the market has perceived a change in the policy framework controlling the movement of the 10-year Japanese government bond yield curve (Yield Curve Control). While in the next phase, it will also be supported by the progress of reforming the Japanese stock market, focusing more on good governance. and the recovery trend of the company's performance
In addition, we recommend gradually accumulating Chinese stocks, A-shares, the trend of specific economic stimulus measures in the second half of the year, and Thai stocks. Political and policy uncertainty has begun to decrease. Adjusted our view on Vietnamese stocks to neutral (after valuations tightened and budgets came out worse than expected). As for Chinese stocks, we maintain our neutral view on H-shares, even though valuations have dropped considerably. But concerns about banking stocks (18% of total market capitalization) that earnings could be affected by lower interest rates and buying local government bonds. Including Tech stocks (37% of the total market capitalization) from the risk of Tech war that is still quite high.-Thai News Agency
Source: Thai News Agency