Mr Sornchai Suneda CFA Deputy General Manager Investment Office and Product Head, Wealth Business Group Siam Commercial Bank US Inflation Numbers Revealed Slower Than Investors Expected US policy interest rates have outpaced inflation for six consecutive months. US inflation is expected to ease gradually.The United States Federal Reserve (Fed) It is confident that inflation can be contained within the target range of 2%.
After that, the central bank will focus again on economic growth. And the market expected to begin cutting interest rates for the first time in June. 67 and interest rates are expected to be cut approximately 3-4 times including this year, when interest rates will start to come down. This reduces the return on holding cash in US dollars. And returns are no better than other assets
“In 2023, holding cash in US dollars returned about 5.1%, which is better than investing in commodities. But it does not give better returns than other assets. Meanwhile, statistics from 30 years ago show that cash denominated in US dollars gave better returns than other assets during crisis years. shows that. But interest rates are on a downward trend while inflation is stable. The economy will still expand. Risky assets will give positive returns. Money in US dollars will not give better returns than other assets, so we need to find ways to invest in other assets before we get lost. Mr. Sornchai say
From early last year to early March. 67 Investments around the world continue to flow into money markets, with the US dollar the most. Following private sector debt instruments, government bonds and stocks in the money market, the US dollar currency has been found to be in circulation for a total of 3.6 trillion US dollars over the last 5 years. This means that when interest rates start falling, money in the money market is denominated in US dollars. This segment tends to invest in various assets.
For investors who park their money in the money market in US dollars. Because investing in financial instruments is considered to have short duration and gives good returns. This prevents investment funds from moving into those assets. In the near future, short-term returns are likely to decline rapidly. Other assets have already started to improve, so investors with the potential to generate good returns should look for ways to invest in other attractive assets, including debt instruments with maturities of approximately 1-3 years, increasing opportunities to invest in attractive Asian stock markets such as Japan and South Korea.
In this regard, investing in foreign debt instruments, debt instruments with maturity dates in the next 1-3 years are considered to offer even higher returns. It's an interesting group. In 2nd-3rd quarter you can also earn from the price difference during the period when interest rates fall.In terms of investing in stocks, it has been found that in the last 1 year, stock markets like the US stock market have grown. and European stock markets all have good operating results. From the start of '24 to the present, benefiting from an increase in large-cap stocks' overweight in an index such as America's S&P500 index. Adjusted approximately 7-8%
This is roughly 6% of returns from large stocks in the 7 Angels group, with the remaining 2% coming from other stocks in the market, clearly reflecting the concentration of returns from large stocks. Looking at the European stock market STOXX600 index, it has been traced from the beginning of 2024 to the present. An increase of 4.5% resulted in the performance of 7 large stocks and almost 4%, leaving only a small portion from small stocks.
Mr. Sornchai That said, the market is expecting a lot of returns from the big stocks in the developed stock markets in the past. And these stocks can be revised to give returns as per the target. Profit to be made from selling Meanwhile, fundamentals still support growth. Further interest rate cuts are positive for this group of stocks as well. Although investors are aware of the factor of lower interest rates in stock prices, the future trend may not be as bullish as in the past, so investors may continue to invest in developed stock markets. But the income received will not be as high as before.
For stock markets in Asia, the Japanese stock market is considered to be interesting. And technology is important for the Japanese stock market index, although it has improved significantly, but when compared to the previous high, when the performance peaked, the price-to-earnings (P/E) of a share was found to be different. This method has a lower P/E ratio.
Meanwhile, the Japanese stock market has taken steps to reform governance. Encourage companies to keep more cash on their balance sheets. Go out and buy back the stock. This allows the share price to rise, increasing EPS and giving more returns to shareholders. This will help increase the return on equity (ROE) of the Japanese stock market. Compared to the present, it is less than US and European stock markets with ROE of more than 20%. As for the overall picture of the Japanese economy, inflation started to pick up. Employment is good, especially in the service sector, where wages have risen in line with inflation. This helps improve consumption in Japan. Accordingly, more investment will come from Japanese investors.
Therefore, we view the Japanese stock market as interesting for the medium to long term. Only in a short period of time did the Japanese stock market rise significantly. There may be some corrections. Investors can wait for the market to recover before reinvesting. South Korean stock market It currently has the lowest share price to book value (P/BV) ratio in every business sector and has plenty of cash on its balance sheet. The South Korean stock market, like the Japanese stock market, tends to increase company value. Through share repurchases and dividend payments to investors
Furthermore, the ROE of the South Korean stock market moves in line with the cycle of South Korea's commodity exports. Those groups are mostly electronics semiconductors, so South Korean exports should recover when the global economy recovers better, thus improving the South Korean stock market's ROE. In terms of earnings per share, the following exports will improve. Additionally, the price-to-earnings (P/E) per share is still cheap, with a trailing 12-month trailing P/E of 10.6 times, or -0.3 SD, lower. Above the 5-year average, the South Korean stock market is an attractive market to invest in. Opportunistic portfolio, a sub-investment portfolio to increase the chance of receiving returns in the 2nd quarter.
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