Emerging markets could slip into financial and economic crisis over the next 1-3 years amid frequent US interest rate increases, the Federation of Thai Capital Market Organizations (Fetco) said on Wednesday, warning investors to exercise caution as risks emerge.
Fetco's Investor Confidence Index stands at 116.59 for the next three months, up 12.2% from the previous index. The index remains in the "neutral" threshold, with the banking sector the most attractive to investors during this period.
Kobsak Pootrakool, Fetco chairman, said Asean, including Thailand, has become one of the world's safe havens due to the minimal impact of geopolitics and natural disasters. The region's economy is recovering, particularly the tourism sector, as the pandemic eases, and capital flows into the Thai stock market are expected to continue.
Thailand, in particular, is benefiting from the baht depreciation that gives exports of agricultural and food products a competitive advantage. The tourism industry, which accounts for 15-20% of the country's GDP, is recovering amid expectations that it will welcome around 9-10 million international visitors this year.
The agriculture, tourism and export sectors employ about half of the population and their recovery should give 30-40 million people higher incomes, Mr Kobsak added.
Meanwhile, Western countries have been plagued by geopolitical tensions, an energy crisis, high inflation, and interest rate hikes. Conflict between Russia and Europe has intensified while the situation between China, the US, and Taiwan could spill over to the wider world if China decides to take harsher measures against the island it considers as its own territory, Mr Kobsak noted.
Amid inflation and interest rate hikes, which normally last around 2-3 years in each cycle, investments should be made with caution. As the short-term outlook is volatile, investors should have cash on hand to buy fundamental stocks whose prices normally drop sharply during heavy market selloffs that might happen in the future, he explained.
The Thai stock market, meanwhile, provides good returns compared to other stock markets and other asset classes in the world, Mr Kobsak said, with investment returns among the top five in the world.
The top-return markets in August were Vietnam, the Philippines, Thailand, India, Indonesia and Malaysia.
Assets that are expected to provide good returns in the future include the US dollar, which is expected to appreciate as the Federal Reserve continues to lift the rate and launches quantitative tightening measures. Other currencies will be weakened due to many risk factors ahead, such as economic slowdown, energy crisis, natural disasters, and food security.
