Investors have been keeping an eye on assets offering a decent return this year amid global market volatility and an economic slowdown.
The volatility is primarily driven by rising interest rates, high inflation and the recent banking turmoil in the US and Europe.
Gold, normally perceived as a safe-haven asset during recessions or periods of uncertainty, is used by some investors as a hedge against inflation. When inflation is high, investors tend to flee from fiat currencies to the precious metal.
The monetary policy used by central banks to tame inflation is often important in driving up the price of gold.
Gold prices surged to a one-year high in March, breaking the US$2,000 mark for the first time since early 2022, as market instability caused by the failure of Silicon Valley Bank (SVB) and the Credit Suisse takeover by rival UBS shook investor confidence.
SVB's collapse was the most prominent banking failure since the 2008 financial crisis. The California-based bank heavily invested in US government bonds, which have declined in value amid rising interest rates. To cover customer withdrawals, the struggling bank sold off the bonds, resulting in a liquidity crunch.
Troubles in the banking sector continued as Credit Suisse acknowledged "material weaknesses" in its booking, which led to the rescue takeover by UBS, a bid that resulted in $17 billion of Credit Suisse bonds becoming worthless.
This caused alarm bells to ring in the markets, damaging investor confidence in banking stocks.
"Interest in gold has increased in recent weeks as uncertainty has risen," Krishan Gopaul, senior analyst at the World Gold Council (WGC), told the Bangkok Post.
Gold ETF, an exchange-traded fund that aims to track the domestic physical gold price, registered inflows of $2 billion over the last two weeks to March 24.
"This coincides with the recent banking crisis, which has led to investor demand for proven diversifiers such as gold," he said.
"Before this, gold ETFs posted 10 consecutive weeks of outflows. We've seen increased interest in gold futures too, suggesting a more positive sentiment towards gold."
STOCK INVESTMENT
As the collapses of US banks reveal the weaknesses of financial institutions, Nuttachart Mekmasin, vice-president at Trinity Securities, said market confidence has somewhat revived once central banks and governments stepped in to make depositors whole.
"In the future, even if more banks fail, the market should have less of a reaction than what happened in early March," he said.
"Investors see there are solutions to settle the issue, which are specific problems for these banks, not systematic risk."
Mr Nuttachart said the Stock Exchange of Thailand (SET) Index may have already peaked in the first quarter of 2023.
For the remainder of the year, he expects the index to finish at no higher than 1,690 points.
Sukit Udomsirikul, managing director for the research department at InnovestX, said although external factors are quite challenging, the Thai economy has steadily recovered this year, with China's reopening providing the main support.
Tourism is continuing to recover from the pandemic, while domestic consumption is growing to help offset slowing exports, said Mr Sukit.
"Listed Thai companies have a strong financial position and monetary policy is stable. These factors ensured the Thai stock market did not fluctuate too wildly," he said.
As interest rates are nearing a peak, Mr Sukit said monetary policy would start to ease, with real yields turning positive.
"This means the dollar will weaken, which will benefit risky assets, especially in emerging markets," he said.
"The time to accumulate stocks is when the SET Index is below 1,600 points."
InnovestX is positive on stocks in the sectors of commerce, tourism, healthcare and banking. Profit in the commerce sector is supported by improving retail sales, in line with recovering economic activity and increasing tourist arrivals, along with branch expansion and better margins for rental income, said Mr Sukit.
The banking sector expects profit growth of 13% this year, supported by 6% estimated loan growth, he said.
Mr Nuttachart from Trinity advised investors to avoid stocks influenced by the global economy such as energy, petrochemicals and exports amid a potential economic recession this year.
He recommends investing in US technology and high-growth stocks, which are on a rebounding cycle, while the prices are very low.
Chinese stocks are also interesting, particularly technology stocks and those related to domestic consumption, but Mr Nuttachart urges caution regarding regulatory risk.
ASSET OPTIONS
Gold plays an important part in the management of central banks' reserves as they hold a significant amount of gold.
According to the WGC, available data for January and February showed central banks have continued to buy gold in 2023.
In January, central banks collectively added 31 tonnes to global gold reserves, up 16% month-on-month. This was within the 20- to 60-tonne range of reported purchases occurring the last 10 consecutive months of net buying, said the council.
"Gold's performance in times of crisis and its role as a long-term store of value without default risk are key reasons central banks point to for owning gold," said Mr Gopaul.
Market volatility has caused analysts to speculate on gold price forecasts. ANZ Research in mid-March upgraded its gold price forecast, citing a slowing in the Fed's interest rate hike cycle as well as a weaker dollar for the revision.
The banking group projected the precious metal to trade at $2,000 in late 2023, accelerating to $2,075 by September 2024.
Reuters' January survey of 38 analysts found expectations for gold prices in 2024 were less optimistic, estimating the precious metal averaging $1,890 for the year.
The forecast from Trading Economics as of March expected gold to trade at $1,844 by the end of the current quarter. The website's macro models and analysts' expectations predicted the price to fall to $1,779 in 12 months.
Jitti Tangsithpakdi, president of the Gold Traders Association, said gold prices have short-term resistance at $2,010 and the $1,975 level given the easing of the banking turmoil in the US and Europe.
Gold prices have retreated recently as worries over a crisis in the banking sector subsided, prompting investors to scale back safe-haven trades in favour of riskier assets.
"The stability of financial institutions in Europe and the US is a major factor driving current gold price movement," Mr Jitti told the Bangkok Post.
"If central banks manage to inject money into the banking sector successfully, the situation will return to normal, with gold prices becoming less volatile."
He said because hundreds of small banks have unhealthy conditions, he expects gold prices to remain volatile in the short term, with a possibility of hitting $2,010 before the Federal Reserve makes its next interest rate decision in May.
Bitcoin has also been sought after as an alternative asset, with investors diversifying their portfolios to other assets following the recent bank run at SVB, said Jirayut Srupsrisopa, chief executive of Thailand's leading cryptocurrency exchange Bitkub.
"We are seeing the gold price reach a record high. This shifting flow of funds to other asset classes is not only apparent in Thailand, but also across global markets," he said.
"Recent data showed an increase in the trade volume and price of Bitcoin the past two months, while the trade of other digital currencies remained subdued," said Mr Jirayut.
According to CoinMarketCap website, Bitcoin appreciated 39% in January and 49% from its low of $15,460 in 2022, topping $20,000.
The price and trading volume continued to rise in February, reaching $23,000 at the end of the month.
Siam Commercial Bank Chief Investment Office (CIO) views US government and corporate bonds as attractive assets that investors should consider holding this year, as they should yield great returns if the Fed continues to lift rates in a bid to tame sticky inflation.
The Fed is expected to lift the policy rate by another 0.25% in May, peaking at 5.25-5.50% and steadying throughout 2023 before gradually lowering rates next year, said CIO executive vice-president Sornchai Suneta.
"Increasing interest in offshore bonds among average and high net worth investors since the beginning of 2023 matches the current state of the global economy, which is likely to slow down," he said.
"As a result, investors are starting to weigh their investment in low-risk assets such as bonds."
The latest data from the Bank of Thailand indicated investment in foreign debt securities through agents among retail investors was worth $1.22 billion in January this year, up 7.96% from December last year and 58.6% year-on-year.
Meanwhile, investment in foreign debt securities through mutual funds grew 7.69% month-on-month and 11.2% from a year earlier to around 4 billion baht in value terms.
PORTFOLIO DIVERSIFICATION
Kris Chantanotoke, chief executive of Siam Commercial Bank (SCB), said the Credit Suisse buyout could cause wealthy Thai investors to pay more attention to risk diversification of their investment portfolio, focusing on assets they understand.
This group may realise a good understanding of the assets is more important than the return on investment, he said.
"Wealthy local investors could adjust their investment portfolio by diversifying to Asian markets as the European money market faces higher risks. They may also turn to local wealth management services," said Mr Kris.
He said Credit Suisse's wealth management service is quite strong and the bank has no issues.
Payong Srivanich, chairman of the Thai Bankers' Association and chief executive of Krungthai Bank, said wealthy Thai customers who invest globally should pay more attention to portfolio diversification.
"Given the banking turmoil in the US and Europe, investors should monitor market circumstances in order to adjust investment portfolios properly," said Mr Payong.
Mr Sornchai of SCB CIO said an appropriate investment strategy for 2023 should rely on overseas investment to diversify risk and increase the chance of positive returns for portfolios.
"Investors should invest overseas in US currency, especially as the baht appreciates. It is advisable to exchange money to US dollars and keep it in a foreign currency deposit [FCD] account before choosing the right moment to invest," he said.
"The advantage of an FCD account is investors can hold US dollars for offshore investments. Investors can reinvest the returns in their account without having to worry about exchange rate fluctuation, waiting for the right moment to exchange the money in the account back into baht, or use it abroad.
"Investment strategy needs to be focused more on income or generating cash flow than short-term growth, as there is still high volatility in the equity market."
With the current market volatility, Mr Sornchai said 70% of a portfolio should have income-generating assets, 60% of which are foreign fixed income investment-grade assets, government bonds and quasi-government bonds.
The remaining 10% of the income-earning assets should be real estate investment trusts, especially in reopening economies such as Thailand and Singapore that will benefit from the tourism recovery, he said.
The other 30% of the portfolio should be allocated for equity shares, with 20% consisting of thematic long-term growth shares such as environmental, social and governance-related equities, including renewable, green energy and electric vehicles, said Mr Sornchai.
The final 10% from stocks should offer downside protection, such as equity-linked notes or derivative paper that is linked with shares and provides upside gain when the share performs.
"This portion of asset allocation in a portfolio will help to cushion against risks during a period when equity performance is unclear," he said.
While Mr Sornchai expects it won't take long for volatility in the market to subside, he advised investors to remain cautious in the medium term in case the Fed continues to hike rates, placing more importance on inflation control than financial stability, as this could cause another crack in the market.
