The global economy is projected to slide into a recession next year, says Tisco Economic Strategy Unit (ESU), which suggests investors reduce their stock investments and opt for debt instruments, especially US government bonds.
Komsorn Prakobphol, head of the economist strategy unit at Tisco ESU, said the expected recession would prompt the US Federal Reserve to cut interest rates faster and stronger than expected next year. As a result, the return on bond investments would surge to more than 10%.
"Investing in bonds can generate higher returns than stocks and helps investors diversify risks in their portfolio when the global economy enters a recession in 2024," Mr Komsorn said.
The US government bond yield is around 4.5% and is expected to decrease to 3.9-4.0% by year-end, in line with the overall economy.
Investing in 10-year bonds now will earn an additional 2-3% price difference in addition to normal interest of around 4.5%, meaning investors can earn a total return of 6-7% in US dollars in one year, he said.
If the global economy enters a recession next year and the Fed cuts rates faster and stronger than expected, the total return on bond investments could increase to more than 10%, said Mr Komsorn.
A slowing economy could lead to a downgrade in stock market earnings forecasts.
US government bonds, which have a high yield and low risk of default, are recommended, he said.
Bualuang Securities said interest rates will remain high in the short term as the economy slows down, possibly leading to an increase in bad debts.
This outcome could affect finance and banking stocks in the future, said the brokerage.
Thailand's household debt is high and non-performing loans (NPLs) could rise, affecting banks' interest income, said Bualuang Securities.
NPLs are possible for debts incurred during the pandemic, most of which are personal debts and farming debts, said the brokerage.
Lending criteria will likely be tightened to cope with rising NPLs and economic conditions, said Bualuang Securities. As a result, commercial banks will find it much harder to extend loans, which provide the main income for banks, said the brokerage.
"Although lending might decrease, it is good for banks to tackle NPLs, which have been on the rise," Bualuang said in a research note.