Thai stock market set for a drop due to US inflation

Kasikorn Asset Management (K-Asset) anticipates a downward trend in the Thai stock market over the forthcoming quarter, prompted by a slow decrease in US inflation and interest rates. The asset management firm advises investors to mitigate risk through portfolio diversification, targeting the US and Indian stock markets.

K-Asset CEO Wajana Wongsupasawat forecasts an additional drop in the Thai market in Q2, driven by persistent US inflation. This suggests that the Federal Reserve may not lower interest rates as much as the market anticipates.

He mentioned that the Thai market may not see an increase this quarter, but we continue to advocate long-term investments in local stock and bond markets, He further emphasised the significance of diversification, advising against concentrating investments in a single asset or country. By diversifying risk, investors can expect increased returns and reduced risk.

Wajana observed continuous growth in the US economy, with inflation gradually declining to the Federal Reserve’s 2% target, indicating a potential soft landing for the market. This suggests that both the stock and bond markets may yield positive returns once interest rates begin to decrease.

Additionally, other significant economies are demonstrating signs of improvement. For instance, with decelerating inflation in Europe, the European Central Bank is likely to start reducing interest rates this quarter. In Japan, the GDP forecast for Q4 of this year has been revised upwards, indicating the economy’s growth potential, said Wajana.

“The US and Indian stock markets have seen significant growth since the beginning of the year, with the forward price-to-earnings ratios soaring above the 10-year averages. We consider these two markets to be of interest based on the exceptional profit growth trend of listed companies.”

Federal Reserve

Wajana warned that the bond market could be volatile due to the stronger-than-expected US economy, which has delayed the Federal Reserve’s rate cuts. This could lead to a potential decrease in debt instrument prices, particularly if economic data suggests that the Federal Reserve may not cut rates this year.

Despite these potential risks, Wajana maintains that debt instruments are vital for diversifying investment portfolios. He suggests that if US rates begin to fall, now would be an opportune time to invest gradually in this asset class.

Meanwhile, Kasikorn Securities (KS) identified potential support factors for the Stock Exchange of Thailand (SET) index in May, as domestic purchasing power grows alongside the recovery of the tourism industry. However, geopolitical tensions and the Federal Reserve’s hawkish stance pose significant risks.

KS forecasts a sideways movement for the SET index this month, recommending stocks such as Muangthai Capital (MTC), TMBThanachart Bank (TTB), Asia Aviation (AAV), Erawan Group (ERW), and Thai Union Group (TU), reported Bangkok Post.