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Baht/$ 33.50/55
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GOLD |
14,450
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Low bond supply could curb choices
DARANA CHUDASRI
Local fund managers are cautiously bullish on growth prospects for the near future, as the launch of the new limited deposit insurance programme could spur a shift in assets from banks to money market and bond funds.
But potential growth could be limited by the supply constraints in the bond market, according to fund managers.
The new Deposit Protection Agency Act (DPA) formally takes effect on Aug 11, replacing the blanket guarantee on bank deposits that has been in place since the 1997 crisis. Bank deposits will be fully guaranteed for the first year, with protection curbed at 100 million baht per customer per institution in the second year. After five years, guarantees will be capped at one million baht per client.
Wasin Wattanaworakijkul, an assistant managing director at Bualuang Asset Management, said the DPA would encourage depositors to diversify from bank deposits.
Mutual funds, particularly money market funds, represent a good option for many depositors, as credit risk is the same as country risk and liquidity is plentiful.
But growth of the money market would be constrained by the relatively small size of the bond market, Mr Wasin said. He estimated that of the 8.8 trillion baht in deposits held by local banks, around 40% were savings and short-term deposits.
"In an extreme case, domestic money market funds can't absorb the funds if there is a complete shift from banks to money market or treasury funds," he said.
A sharp increase in demand would also push down bond yields and limit the attractiveness of money market funds for depositors.
Mr Wasin said that if local short-term yields fell below bank rates, investors could shift to overseas money market funds.
The first half saw a jump in flows to foreign investment funds focused on overseas fixed-income instruments, such as Korean government bonds.
Paisal Krutdumrongchai, a fund manager with TMB Asset Management, said depositors worldwide were shifting away from straight bank deposits to mutual funds in search of higher returns.
But even the best-performing bond fund still is unlikely to beat inflation this year. Investors seeking higher returns should look for other options.
"If investors want returns that outstrip inflation, you have to look at property, stocks or commodities, both locally and abroad," Mr Paisal said. "But for a retiree unfamiliar or with a low risk appetite, deposits may very well be the best choice."
Equity mutual funds this year have soundly underperformed other asset classes as the SET index is off nearly 21% since January.
Foreign investment funds with an equity focus have hardly fared better, as global stock markets have turned bearish due to rising world inflation and the lingering impact on banks from the US sub-prime mortgage crisis.
For investors with a medium-term outlook, though, bargain opportunities abound.
Boon Vanasin, chairman of Piyavate Hospital and a major investor in the market, said now was the right time to accumulate stock.
The SET index, which closed at 678.66 on Friday, was near its bottom, he said, while declining oil prices would help push down inflation in the second half.
Dr Boon recommended investors increase their stock holdings to 20% of their portfolios over the next three to four months and to 30% in 2009.
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