Aberdeen predicts 3 hikes
Aberdeen Asset Management expects the US Federal Reserve to raise rates at least three times this year and advises investors to selectively buy local equities and short-term bonds to ensure flexibility when rates rise.
The Fed has signalled that the time has come for rate hikes because the world’s biggest economy is back on track. The first rate rise is expected in March, with at least two more planned in the second half this year, said Adithep Vanabriksha, Aberdeen’s chief investment officer.
With the US rate hike, shares on the Thai and emerging-market bourses should not gain as much as last year, he said. Investors are starting to shift their investments from emerging countries to hunt for better yields in the US.
“But I don’t think the Thai market will perform poorly this year, as listed companies are likely to report healthy earnings this year in line with the recovery of the Thai economy,” Mr Adithep said. “We don’t know how fast the Fed will move this year, but most investors have already priced in their reaction, so I don’t expect much movement.”
Foreign capital that poured into Thai equities last year will likely flow out this year, he said.
“We recommend investors adopt a selective strategy this year,” Mr Adithep said. “Several sectors are attractive, such as construction, driven by the government’s infrastructure investment, though their current price-to-earnings ratios are quite high. Also recommended are automotive, healthcare and sectors related to tourism such as food and beverages.”
He said US small-cap funds, AsiaPacific regional funds and India-based funds should generate a fair rate of return based on domestic consumption.
Aberdeen remains overweight in Thai equities, some 4-5% above the MSCI, to which it allocates only 1-2%. The company is upbeat on Singapore, India and Hong Kong but underweight in Korea, Taiwan and the Philippines, as those economies overheated in the past few years.
For bonds, Mr Adithep recommends three- and five-year maturities because the interest rates could rise beyond bond yields at some point. The average term of bonds registered with the Thai Bond Market Association is seven years.