SCB CIO expects inflation to pass near its peak, reflecting a slowdown in commodity prices.
Dr. Kampol Adireksombat, Senior Director and SCB Chief Investment Office (SCB CIO) team leader, Siam Commercial Bank, said that the slowdown in commodity prices is beginning to see signs of inflation approaching past its peak. But the interest rate direction this year is still up. Recession concerns remain high. causing bond yields to slow down And commodity prices, especially non-supply tight goods such as copper and nickel, saw a sharp drop in prices. As a result, inflation numbers, especially in the United States. near the peak but still at a high level make the main central bank such as The Federal Reserve (Fed) and the European Central Bank (ECB) continue to signal fast and strong interest rate hikes this year. Going forward, the focus is on the direction of interest rates in 2023, with numbers in the US and Europe starting to show. Signs of a slowing economy But the US labor market remains strong.
After the stock market around the world has been derating quite a lot. But we still have to wait for clarity from the 2nd quarter results and the revised earnings forecast in the second half of the year. The second quarter results will be an indicator of how well listed companies’ profits are affected by high inflation. interest rate rise and economic slowdown The latest adjustment of earnings forecasts in the United States. And the latest improvement in Europe comes from the energy sector. Meanwhile, earnings of other business segments were downward. In addition, SCB CIO believes that rising recession concerns will put pressure on long-term bond yields, making the subsequent move more gradual. But the faster rise in short-term bond yields following the policy rate hike will result in a periodic inverted yield curve in the second half of the year.
Dr. Kamphon further said that SCB CIO’s Asset Allocation Portfolio Strategy by recommending 5-10% cash in the portfolio while the market waits for clarity from the 2nd quarter results and 2023 interest rates, while accumulating investment grade bonds. To create a 20-30% portfolio income stream and we have a Neutral view for overall equity investments. Among the Develop Markets (DM) markets, there is a Neutral view of the US stock market. to wait for clarity from the effects of inflation and economic slowdown on earnings in the future We maintain our view on European stocks to be Slightly negative on the protracted impact of the Russo-Ukraine War. And the ECB interest rate hike For Emerging Markets (EM), we maintain our Slightly optimistic view on the economy and the Chinese A-share market following continued stimulus measures. Although the number of infected people began to increase But we believe that the next city lockdown will be specific to curb the impact on the economic recovery. Remaining Slightly Positive, we believe the reopening of both countries will boost the economy and earnings. The recovery was evident in the second half of the year. The stock markets of both countries have continued to decline in the past. This is a good opportunity to gradually accumulate into the portfolio. He views that the interest rate hike in both countries will be gradual. In Thailand, there is a chance that The Monetary Policy Committee (MPC) will raise interest rates by 0.25% in the remaining three meetings of the year.
In addition, SCB CIO still recommends around 4-6% of its portfolio in commodities to manage inflation risks. Focusing on oil, which still has tight supply. Including the world oil demand in the second half of the year still tends to increase due to the opening of open cities, especially in Asia. However, we downgraded commodities to slightly positive to reflect concerns that the recession will affect commodity demand. The US dollar remains at a high level. The impact will be greater on non-supply tight assets going forward, such as copper. For HNW and UHNW clients, having alternative assets such as structure notes and private assets in the portfolio will help generate revenue streams and reduce costs. Portfolio volatility
