Investors should look at the risk of an asset class before investing to avoid misunderstandings, a fund manager warns.
Chatrapee Tantixalerm, chief executive of Talis Asset Management, said assets are categorised into five risk classes so investors can select investments appropriate for their risk appetites. He categorises assets as follows.
Money market funds includes investments in deposits, foreign and local government bonds, and commercial banks' bills of exchange (B/E). Money market funds are the lowest risk assets, but foreign exchange risks will still be present in the absence of hedging.
Fixed income includes rated and unrated corporate bonds. This category is slightly riskier. Risk increases based on the degree a portfolio includes non-rated bonds bond or global unhedged bonds, which carry considerable forex exposure and default risk.
Third are infrastructure funds, real estate investment trusts and property funds. This asset class is a notch above fixed income in terms of risk. The most attractive feature of these instruments is high dividends.
Fourth are stock or equity funds. They are a high risk-high return bet. The risk level of these assets is usually associated with the index under which the company is listed: SET50, SET100, non-SET100 , small and mid-cap, etc.
Finally are commodities. It is the riskiest asset class as commodities and instruments that trade on underlying commodities like the oil price index, currency index, agricultural product price index and gold price are interest rate-linked instruments. This asset class pays no dividends, and investors profit by trading on their high volatility.
Investors are wary of corporate bonds and B/E because of a wave of defaults. Corporate bonds and B/E should be some of the lowest risk assets out there, but recent defaults on corporate bonds by four listed firms has shaken investor confidence in the corporate bond market and in small and mid-cap stocks.
The confidence of fixed-income funds with large exposures to corporate bonds has also been affected.
Upside opportunities in the Thai stock market will be limited as the earnings and growth of listed firms is expected to be lower than that of comparable companies in the region, said Mr Chatrapee.
There are also no positive supporting factors, he said.
The SET has averaged a 12% annual return over the past 40 years. Last year, it posted an encouraging 23%. But this year the market has produced a meagre 1-2%.
Mr Chatrapee said he expects the SET to grow by double-digits next year, as infrastructure projects drive economic growth. Leasing, consumer products, and batteries are among the most promising sectors for the rest of the year, he said.