Global stock markets tumbled last week as concerns about a trade war and better-than-expected US employment data stirred fears of inflation and a more aggressive approach to interest-rate increases by the US Federal Reserve.
Wall Street led the decline with technology stocks dragging key indices down by 4-5% or more as they are now considered overvalued. Emerging market bourses also plunged, along with commodities. Most major stock indices fell below their support levels. The US bond market, meanwhile, staged a technical rebound as investors sought a safe haven.
Looking forward, we still believe in the long-term prospects of developed markets, especially the technology sector. US-China trade friction and concern about interest-rate hikes are short-term noise for developed country economies and should fade in the next few months.
Technology stocks still offer attractive growth potential, especially those companies that hold a competitive advantage over, and could even disrupt, traditional business. Thanks to short-term bearish sentiment, we believe the recent correction is an opportunity to accumulate developed-market assets and also high-quality technology stocks. We thus recommend being overweight on developed economy markets and the technology sector.
For emerging markets, we expect volatility to persist for the next few months. For many countries, fiscal and current-account deficits are a problem that could be exacerbated by a trade war and capital outflows. We recommend an underweight approach to EM.
One key factor to watch will be the US midterm elections on Nov 6. If the Democrats regain control of the House of Representatives, they will attempt to rein in or overturn some of the policies of President Donald Trump, and perhaps even try to have him impeached.
In any case, a Democrat majority could slow the momentum of Mr Trump's policies. This could be a positive factor for emerging markets, as he might find it harder to take tougher action on trade.
We have a neutral view on the Thai stock market. The upcoming election is the key positive factor, as well as the key risk if it is postponed for any reason.
The stability of the baht may attract more foreign investors to allocate their money to both stocks and bonds locally.
On the other hand, the Thai market valuation is now considered to be at a premium compared with emerging markets overall. The key factor to watch will be third-quarter corporate results, with the banks the first to announce starting this week.
Chatree Rojana-arpa is executive vice-president for strategy and product development at KTB Securities Thailand Plc.