As the new year approaches, it's time to turn our thoughts to establishing financial goals and investment resolutions.
The economic outlook for 2020 is crucial to helping you decide which asset classes meet your investment goals.
The IMF said global growth was set to pick up to 3.4% next year, from 3% predicted for 2019, because of expectations of better performance in several emerging markets. But the fund warned that risk to growth remains on the downside, given the lingering trade tensions between the US and China and the likelihood of Brexit.
Tariffs imposed or threatened by the world's two biggest economies could shave 0.8% off global economic output in 2020 and trigger more losses in future years, the Washington-based multinational lender has said.
On the domestic front, both the Bank of Thailand and the Finance Ministry are optimistic that the country's economic growth momentum will accelerate to 3% next year from 2.8% projected for 2019, with a pickup in several economic indicators like state spending and private investment. The IMF also predicts Thai economic growth of 3% in 2020, up marginally from the 2.9% forecast for this year.
All organisations agree that Thai economic growth in 2020 is vulnerable to downside risks, largely from the tit-for-tat trade tariffs between the US and China.
Tailwinds
Although the global economic backdrop remains murky, a recession is not economists' base case, as economic indicators of major economies still suggest sound conditions overall. Among several indicators, unemployment rates in the US and China are low, at 3.5% and 3.6% respectively, while non-performing loans (NPLs) in these countries are also low at 1.4% for the US and 1.8% for China. The inverted yield curve, a recession predictor, has returned to normal.
Growth among emerging countries is expected to gather speed and fully offset the slowdown in advanced economies.
Offshore funds from portfolio investment are likely to flow into the Thai stock market next year, due to synchronised monetary policy easing by central banks worldwide and inexpensive valuations for Thai shares' price-to-earnings (P/E) ratio.
Public spending is expected to ramp up after months of delay in budget disbursement for fiscal 2020.
Next year, Thailand's outbound merchandise exports could reverse course to modest gains on improving global economic prospects.
Southeast Asian countries like Thailand could benefit from manufacturing base relocations, particularly from China, to avoid the mud-slinging between China and the US.
Headwinds
A permanent trade truce is unlikely before the November 2020 US presidential election, resulting in a continued dampening of Thailand's exports and economic growth.
The baht is expected to trade with an upward slant next year, which could weigh down exports and the tourist sector. The local currency is the top performer in Asia, gaining about 7% against the US dollar this year.
Thailand's high debt level among households and small and medium-sized enterprises (SMEs) continues to weaken domestic consumption. The country has one of the highest levels of household debt in Asia, at 78.7% of total GDP at the end of March, the highest level since the first quarter of 2017.
The country's NPLs have been rising amid the still-sluggish economy and could surge significantly if an income shock springs up.
Political stability is uncertain, given the razor-thin majority of the coalition government.
Stock investment
Although slowing economic and profit growth is not usually a recipe for risk asset strength, Thai shares are expected to fare better than other asset classes next year, said Therdsak Taweethiratham, head of research at Asia Plus Securities.
Based on the brokerage house's earnings-per-share (EPS) growth forecast for Thai shares of 5% in 2020, the upside gain is pretty limited, he said, though a liquidity-driven market could nonetheless be seen as monetary policy eases around the world. The SET index might reach 1,735 points next year if that is the case.
"Even though Thai stocks' upside gain will not be significant, at 8.4-8.5%, the downside risk is limited," Mr Therdsak said. "We will still give them investment weighting in portfolios."
Win Phromphaet, chief investment officer of CIMB-Principal Asset Management, agreed with Mr Therdsak's view, saying EPS growth of listed companies is hobbled by the faltering economy, but Thai shares' outlook for 2020 looks attractive, with estimated returns of 7-8%.
The SET index at around 1,600 points is the appropriate level for investors to enter the market, Mr Win said.
Dividend plays, defensive stocks such as utilities and consumer staples, and hospitals are recommended amid a minefield of uncertainties.
Exposure to fixed income
In this environment, investment in some safe assets, including bonds, creates more risks than are apparent.
Mr Win said the rate-cut cycle in this round is expected to nearly come to an end, and bond holders are risking mark-to-market losses if the rate reverses trend.
Investors should allocate money to short-ended notes that don't exceed three years, he said.
Mr Therdsak echoed Mr Win's comment, saying a slight cut in interest rates is expected, so investors should put money into bonds with up to three years' maturity.
Overseas investment
When it comes to overseas investment, the keywords are "diversification to mitigate risks", Mr Win said.
As emerging markets, particularly in Asia, have a brighter outlook than advanced nations, investors should allocate their investment portfolio to Asia-Pacific shares, while piling into real estate investment trusts (REITs) and infrastructure funds in Singapore, Australia and Japan, Mr Win said.
"REITs and infrastructure funds are expected to continuously cash in on the low-rate environment as they generate steady income stream to investors, but they are expected to offer marginal gains in terms of capital appreciation because their prices have surged for a while," he said.
Moreover, overseas infrastructure funds and REITs are backed by larger assets than those in Thailand, and some asset types are not available here.
Another key word for asset allocation in overseas markets is hedging foreign exchange risks, as the baht continues to trend upward against the greenback.
Mr Therdsak recommends investors give more weighting to Asian markets, several of which remain undervalued relative to advanced economies.
"The Chinese market is a focus because their shares still underperform, while economic stimulus measures that come from the Chinese government will give them a boost," he said.
Avoid gold
Gold gained significantly this year amid rising uncertainty and is expected to lose its shine in 2020, Mr Win said, noting that the appropriate entry level is US$1,200 an ounce, given that gold mining costs about $1,000 per ounce.
Mr Therdsak said he hasn't given a big investment weighting to gold next year, due to lower valuation attractiveness after this year's sharp rise.
The precious metal's price is up 14% in 2019.
Asset mix
Allocating investment across a mix of asset classes with varying levels of risk-return trade-offs may not guarantee a profit, but it efficiently reduces the probability of wealth erosion.
ASP recommends investors allocate 40% of their investment portfolio in 2020 to Thai shares, 15% to overseas stocks, 30% to local fixed-income instruments and the remainder to alternative investments, including floating-rate notes and equity-linked notes.
Expected return from the investment portfolio model is 10-12%, Mr Therdsak said.
CIMB-Principal Asset Management advises risk-tolerant young workers to allocate 30% each to Thai and overseas shares and 30% to alternative investments like REITs, with the remaining 10% going to bonds.
According to the strategy of asset allocation by age, investors should lower the ratio of stock investment over time to mitigate risk, starting with risk acceptance then shifting to fixed-income assets over time, Mr Therdsak said.