Trinity’s perspective after the Fed cut interest rates by 0.50%, supporting liquidity in the Thai stock market in the fourth quarter, expecting the Bank of Thailand to cut interest rates by 2.5%, recommending focusing on the Domestic play stock group, the public utility group, and infrastructure, along with holding gold and bonds to hedge against the risk of a slowdown in the global economy.
Mr. Nattachat Mekmasin, Assistant Managing Director, Securities Analysis Department, Trinity Securities Co., Ltd., mentioned the results of the US Federal Reserve (Fed) meeting, which recently announced a 0.50% interest rate cut, that it will affect global assets in 10 main areas as follows:
1. On the US stock market side, it is estimated that it will be the technology stocks (Nasdaq) that will start to adjust and become stronger (Outperform) again because they are usually a group that is resistant to economic slowdown. In addition, it may also include mid- and small-cap stocks (Russell 2000) that will quickly benefit
from the adjustment of interest rates in the market.
Thai stock market: It is recommended to avoid stocks in the global cyclicals group for a while longer, such as the oil and petrochemical groups. Although the valuation of most stocks in this group is still lower than the average, concerns about the slowdown of the global economy have the opportunity to pressure prices further. It is recommended to focus investment in groups that depend on the domestic economy (Domestic play) such as retail, real estate, and finance, which still have valuations lower than the average.
Assessing Thailand’s liquidity remaining in deposit accounts for individuals or juristic persons who wish to deposit money in foreign currency (FCD), more than 770 billion baht will start to flow back into the country, some of which is likely to flow into the domestic capital market system. This is a factor that will help support the Thai stock market in the fourth quarter of 2024.
Looking at the excess liquidity that is set to flow in more
in the next period, when combined with the low level of global economic relevance and the valuation that is still going nowhere, slow (laggard) such as large-cap stocks, it is expected that there is a chance to see mid-small-cap stocks (sSET and MAI) outperform again in the 4th quarter.
Gold is seen as a key winner from the latest Fed meeting, as one leg will benefit from a bigger-than-expected rate cut, while the other leg will benefit from heightened concerns about a slowdown in the global economy. Therefore, a short-term drop in prices is seen as an interesting opportunity to add weight.
Looking at the trend, US bond yields have a chance to continue to fall, especially the short-term version. Therefore, for investors who have previously made profits from holding US bonds, it is recommended that they can continue to let the profit run.
In terms of the impact on the USD, it is quite difficult to assess. On one side, there may be pressure from the USD carry trade phenomenon that may continue. On the othe
r side, there may be those who are concerned about the global economy and slow down their money transfer to safe havens, of which the USD is one.
The Fed’s 0.50% rate cut further increases the confidence that has been assessed all along that the Bank of Thailand (BOT) will be able to cut the policy interest rate by 0.25% within the fourth quarter of this year, which is in the assumption of calculating the SET Index target level. In the best case, it will be at 1,480 points.
Looking at the trend of Thai bond yields, it is likely to adjust downward in line with US bond yields in the next period. Therefore, for those who hold Thai bonds, they can also let the price run along with the market trend (Let profit run).
The likely further decline in Thai bond yields will also cause the dividend yield gap gauge of bond-like instruments such as infrastructure funds (IFFs), real estate investment trusts (REITs), and utility stocks to adjust upwards. We recommend continuing to overweight these instruments.
Source: Th
ai News Agency