For nearly a decade after the global financial crisis, financial markets have surfed a wave of low-cost money on the back of advanced economies' quantitative easing (QE) led by the US Federal Reserve. But the era of cheap money is drawing to a close amid a synchronised economic expansion worldwide.
With the economic recovery, the US central bank has already normalised its monetary policy. The European Central Bank is set to stop pumping fresh money into the economy at the end of this year, while the Bank of Japan has signalled that it's considering how to normalise its own ultra-easy policy.
For its part, the Bank of Thailand said in the minutes of its June 20 meeting that the rate-setting committee had intensively discussed a rate-hike path, though in the end the policy rate was left unchanged at 1.5%, where it has stood since April 2015. The central bank argued that the accommodative monetary policy was lending support to the economic recovery.
Concerns over the tightening monetary policy of major central banks, coupled with the tit-for-tat trade spat between the US and China, have triggered capital flight from emerging markets like Thailand. A sell-off by foreign investors has been spotted in Thai equities and bonds.
According to data from the Thai Bond Market Association, foreign investors yanked about 80 billion baht from Thai short-dated notes but bought 84 billion baht more than they sold in long-term bonds in the first half. And while the baht's weakness against the US dollar has whittled down investor appetite for Thai bonds, long-term bond yields are still attractive and exceed the 10-year US treasury yield by one percentage point.
As for the stock market, foreign investors have pulled almost 200 billion baht from Thai shares so far this year.
Here are some expert ideas on how to invest during wild swings in the market.
Wilasinee Boonmasungsong Vice-president for research, Globlex Securities
Amid external uncertainties, investors are advised to accumulate domestic plays that are expected to take advantage of government policies and have less exposure to external factors and the trade rift of the economic behemoths.
Positive factors for stock investment in the second half are high oil prices, solid global economic growth, the government's ramped-up investment in big-ticket infrastructure, domestic political stability and the progress of the Eastern Economic Corridor (EEC).
The acceleration of state and private investment is expected to continue into the second half, and construction contractors will capitalise on the government's planned investment in 44 infrastructure megaprojects worth a combined 2 trillion baht.
The general election, tentatively scheduled for next February, is another positive factor that lies ahead.
The SET index is anticipated to move in a range of 1,540-1,685 points for the remaining period of this year. Construction and property are the recommended sectors.
The brokerage house's top pick for the construction sector is Ch.Karnchang Plc (CK), as the company has a backlog worth 65 billion baht and average annual revenue of about 38 billion baht. Furthermore, CK's subsidiaries -- including Thai Tap Water Supply Plc (TTW), Bangkok Expressway and Metro Plc (BEM) and CK Power Plc (CKP) -- pay roughly 1.1 billion baht a year to CK.
In the property sector, Land and Houses Plc (LH) is Globlex's top pick, given that it has the highest ratio of rental income in the industry at 30% and its investment value is 5.87 baht per share.
LH holds a 21.9% stake in LH Financial Group Plc (LHFG), 21.2% in Quality Construction Products Plc (Q-CON), 30.2% in Home Product Center Plc (HOMEPRO), 25% in Quality Houses Plc (QH) and nearly 50% in Land and House Freehold and Leasehold Property Fund (LHPF).
Moreover, LH consistently pays dividends, and an incoming voluntary partial tender offer by major shareholder Anant Asavabhokhin of 11.80 baht could cushion against the market's current volatility.
The partial tender offer worth 1.41 billion baht will seek the company's shareholder approval at a meeting on Aug 8.
Low-beta stocks with high dividend payments are also recommended for investment amid the market's wild swings, as their return is higher than inflation and deposit rates. These securities include LH, Digital Telecommunications infrastructure Fund (DTF), Diamond Building Products Plc (DIAMOND), Glow Energy Plc (GLOW), Hana Microelectronics Plc (HANA), Thanachart Capital Plc (TCAP), Siam Commercial Bank (SCB), Krungthai Bank (KTB) and Somboon Advance Technology Plc (SAT).
Nareumol Bunsanong Certified financial planner, Thai Financial Planners Association
Amid the market's fluctuations, diversification through a multi-asset investment strategy with an asset allocation that suits the individual investor is recommended. Thai shares remain the best long-term bet, with 27 years of gains and an average return of 40% versus 15 years of losses at 19% on average.
External factors affecting market sentiment this year and next include global interest rate hikes and inflation spikes, geopolitical tension, the international trade spat and Brexit, while internal factors that could dictate market direction in the next 12-18 months are the baht's movements, inflation, interest rate trends and infrastructure investment.
Investors are advised to pour money into stocks listed in the SET High Dividend 30 Index (SETHD) and have a dividend yield of more than 7% with a payment record of at least five years running.
"Long-term investment can reduce lost opportunity and generates higher return than inflation and deposit rates," Ms Nareumol said.
Tada Phutthitada President, Thai Bond Market Association
Government bonds are an interesting choice for investors who prefer low risk but higher returns than deposit rates, at a time when global interest rates are trending upward but domestic rates remain static.
Government savings bonds are being offering to the public until September. The five-year bond has a coupon rate of 2.15%, while the 10-year maturity has a 3% rate.
"I believe Thailand's policy interest rate will be left on hold this year and a rate hike is expected in the first quarter of next year," Mr Tada said. "We may then be patient with low interest until next year, and corporate bonds may be another good choice amid the current environment."
Subordinated debentures normally offer better rates than bank deposits and government bonds.
The financial strength of the issuer and call option conditions are points to consider when investors look at subordinated debentures. Like other types of bonds, subordinated debentures carry the risk that the issuer might ultimately lack sufficient funds to pay off the principal.
"Subordinated debentures offer attractive returns, but investors might lose part or all of their investment if the issuer goes bankrupt," Mr Tada said.
Perpetual bonds are another interesting choice, given their attractive interest rates.
This type of instrument has become popular for financing infrastructure projects such as the Purple Line electric train.
A perpetual bond is a hybrid bond; it is classified as an equity in the first five years after it is offered, then it turns into debt after that. The issuer's debt-to-equity ratio declines in the first five years before shooting up thereafter.
"Perpetual bondholders don't expect to get back principal when the issuer collapses, and sufficient cash flow to buy back the bonds after five years is what investors should focus on," Mr Tada said.
Interest payment is a point of concern for putting money into perpetual bonds. The issuer's ability to pay dividends is linked to coupon payments. The bond covenant requires the issuer to pay interest to bondholders only in the event that it pays dividends to shareholders.
"If perpetual bondholders want to receive interest, they must find out whether the major shareholders [of the issuing company] want to offer dividends, and they have the potential to receive interest if the major shareholders prefer dividend payments," Mr Tada said.
Securitisation offered by the Secondary Mortgage Corporation is also a good alternative investment, due to attractive interest payments and quality collateral used to back the debt instrument issuance.
To make it easier for investors to consider bond investment risk, credit ratings are useful for investors to get insight into a bond issuer's creditworthiness.
With the risk-return trade-off principle, low levels of uncertainty or risk are associated with low potential returns, whereas high levels of uncertainty or risk are associated with high potential returns.
Debt instruments that carry a credit rating of BB or lower by Standard & Poor's, or Ba or below by Moody's Investors Service, are junk bonds, which normally yield higher returns than investment-grade bonds.
According to a study by the Thai Bond Market Association, the default risk of AAA-rated bonds is 0.01%, while for AA it's 0.02%; for A, 0.16%; and for BBB, 1.51%.
More corporate bonds with AA credit ratings or higher are available nowadays after the spate of defaults on unrated bills of exchange in the past two years.
Only 10% of corporate bonds are sold to the public, however, and most of them are offered to high-net-worth investors.
Investors monitor share prices at the Stock Exchange of Thailand's Maruey Knowledge & Resource Center on Ratchadaphisek Road. PATIPAT JANTHONG
Bull and bear mascots greet visitors at the Stock Exchange of Thailand's Investory museum on Ratchadaphisek Road. TAWATCHAI KEMGUMNERD
