Tisco Economic Strategy Unit (Tisco ESU) recommends investing in healthcare and tech stocks as it expects the US Federal Reserve to increase interest rates by another 75 basis points at its meeting on July 27, raising the risk of recession.
Komsorn Prakobphol, head of the market insight centre, expects the 75-basis-point hike to be followed by a 50-basis-point increase in September and a standard 25-basis-point rate rise at each of the two meetings in November and December.
If the increases come to pass, US interest rates will likely hit 3.5% by year-end, stoking fears of a downturn as global economies start to show noticeable signs of slowing down, triggered by soaring inflation and the Fed's repeated rate rises.
Besides interest rate hikes, other recession indicators that may come into effect within the next 6-12 months include significant US economic figures such as retail sales, home sales, industrial sector orders, and the confidence index.
Many major economies are at risk from other negative factors, such as the Chinese economy, whose outlook remains uncertain due to the country's zero-Covid policy and issues in the country's real estate sector.
European economies are also facing energy shortages which are affecting the continent's industrial sector, Mr Komsorn said.
Tisco ESU forecasts that the recession will have a direct impact on global stock markets as tighter monetary policy will put pressure on share valuations and price-to-earnings ratios.
Another effect will be the gradual decline of earnings per share for listed companies in economies with slower growth.
Analysts predict that listed firms on the US stock market will see declines in earnings, causing the stock market to remain bearish. However, Tisco ESU believes that US stock valuations have dropped to an appropriate level, meaning that negative movements in the stock market should be limited.
For investment strategy, Tisco ESU recommends healthcare and technology stocks as both sectors show high potential for growth.
According to data from Tisco ESU, healthcare stocks' return rate has expanded by 10% per year, surpassing the S&P 500's 7% per year.
Technology stocks have also seen long-term profit growth over the past 30 years. Although these stocks will be directly influenced by adjusted earnings forecasts, the adapting stock valuation will compensate once the market has fully responded to monetary policy risks.
Despite the selloffs, Tisco ESU expects tech stocks to perform strongly in the second half of 2022.
