CIO SCB expects to start seeing slower rate increases from major central banks in the first half of 2023, but with slower and above-target inflation, most central banks will continue to keep interest rates high. Leads to a significant and simultaneous slowdown in the major economies. (Continuous and severe slowdown) The Eurozone and the UK are still the two major economies most at risk of a severe recession. As a result of the Russian-Ukrainian War and energy crisis Although the US economy Lower risk due to the strength of the labor markets and households and businesses with low leverage. Investment strategy SCB CIO believes that, in such a situation, investors should focus on investing to generate returns from cash flow (Yield) rather than returns from the price difference (Capital Gains).
Dr. Kampol Adireksombat Senior Vice President and team leader, SCB Chief Investment Office (SCB CIO), The Siam Commercial Bank Public Company Limited revealed that the SCB CIO assesses the global economy in 2023 with a higher risk of recession. From the factors of higher interest rates and inflation coming into play, 6 issues are as follows.
1) Inflation has passed its peak in many countries. But the decline was slow and still exceeded the target of the main central banks. This is due to the slow decline in core inflation. Therefore, controlling inflation remains the main issue for the central bank to tighten monetary policy.
2) Interest rates will begin to rise more slowly in the first half of 2023 and will begin to level off in the second half of the year. But it remains high until inflation returns to its target. In setting the direction of monetary policy, the SCB CIO expects that, in the first half of the year, major central banks will continue to focus on high inflation. And in the second half, it will start to put more pressure on the economic slowdown. The United States Federal Reserve (Fed) is expected to raise interest rates by 0.50 bps to 4.50% at its December 13-14 meeting and is expected at the first three meetings in 2023. will be raised by 25 bps each time and maintain interest rates at 5.25 % until end of 2023.
As for the Bank of Thailand, in 2023 we expect to increase the policy rate by 50 bps. to 1.75%, the highest level before COVID-19. The baht that is likely to appreciate in 2023 is one factor that is tightening financial conditions. (from the US Dollar index which started to slow down in conjunction with the tourist recovery trend and the return of a surplus in Thailand’s current account We revised our 2022F baht forecast to 35-36F and 2023F to 34-35B/USD) and started collecting contributions to’ The Financial Institutions Development Fund (FIDF) at the original rate of 0.46% from the previous reduction to 0.23% during the COVID -19 crisis, which will cause commercial banks to transfer part of the cost to businesses and households through interest rates higher.
3) High inflation and interest rates lead to a significant and simultaneous slowdown in major economies. (Simultaneous and severe slowdown) The SCB CIO believes that the Eurozone and the UK are still the two major economies facing a high risk of a severe recession. As a result of the Russian-Ukrainian War and energy crisis Although the US economy This risk is lower due to the strength of labor markets and households and businesses with low debt compared to previous deep recessions.
4) Economic slowdown and protests will be one of the factors putting pressure on the Chinese government to end the Zero Covid Policy in 2023, but the opening of the country should be gradual. This will have a positive impact on China’s economy and the trade-dependent economy. Chinese investment and tourists especially in the second half of the year
5) Geopolitical uncertainty due to the Russian-Ukrainian War and US-China tensions, as well as economic policy uncertainty, are likely to remain high. This will cause volatility in the global financial market to remain high.
6) Global manufacturing supply chain changes will be accelerated in line with Geopolitics, ESG, and Digital innovation Resilience and safety factors will be considered along with greater efficiency (efficiency) factors
Dr said. Kampol further that For investment strategies in 2023, focus on conservative investment and Diversify investments in high quality assets We still recommend holding cash or investing in low risk investment products 5-15% of the portfolio. Recommend accumulating bonds/debentures by gradually increasing duration but focusing on high quality SCB SCB believes that in such economic conditions investors should focus on investing to generate cash flow returns (yields) rather than return from the price difference (capital gain).
When it comes to the stock market, you need to be careful with the value (P/E) trap being low because prices are falling. But future profits are also at risk of downward adjustment. For investors who can accept volatility Recommend gradual accumulation of Thai and Indonesian stocks which tend to continue to recover in income and profits as a result of recovering domestic purchasing power
However, the global economy is at risk of recession. But China opened cities and OPEC production cuts It is also a supporting factor for world oil prices. Fed a slow rate hike As a result, the pressure on the currencies of emerging market countries began to ease, especially in countries where the current account balance began to return to surplus, such as Thailand, making hedges against risk exchange rate is more necessary.
