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Published on December 25, 2007

Although the Kingdom is getting into economic gear in the hope that the political atmosphere will improve next year, people simply cannot stomp on the accelerator to speed up their personal spending engine.

Amid the changing stance of the central bank's monetary policy and the volatility of the global financial market, they should adopt cautious practices for financial management. There are a lot of opportunities they should seize in order to maximise their wealth and, at the same time, there are things they must avoid to minimise their losses.

The incoming elected government will accelerate investment projects, especially the mass-transit system. This is expected to stimulate private consumption and investment.

Most analysts and economists forecast that interest rates will gradually start climbing in the third quarter next year, when the central bank is expected to tighten its monetary policy to choke inflation spurred by oil price hikes.

Oil prices are expected to continue at a high level for some time due to continuing rising demand from China and India. This will cause a surge in gold and other commodity prices.

The baht is projected to be volatile next year as a result of the rapid movement of capital flows in the world, amid risk factors like a slowdown in the US and the sub-prime mortgage crisis.

So, savers should carefully make decisions on their personal finance issues to fit current conditions.

Here is a list of five should-do things for the next year:

1   Put money in short-term fixed-deposit accounts

For risk-averse persons who want to put all or most of their money in commercial banks, short-term fixed-deposit accounts are recommended during the upward trend of interest rates next year. This would reduce the loss of opportunity when deposit interest rates climb later.

For example, a saver puts his or her money in a deposit account with 24 months' maturity with an interest rate of 2.5 per cent a year. During this period, the banks raise deposit rates across the board - including shorter-maturity accounts - by a quarter of a percentage point to attract depositors, but this saver continues to receive 2.5 per cent until the 24 months expires.

The more frequently banks raise their rates, the more this depositor will lose an opportunity to obtain higher returns. So, a shorter maturity of deposit accounts is preferred.

However, the saver could lose a chance to receive high interest rates of long-term fixed-deposit accounts if he puts too much money in a short-term fixed account. The loss of opportunity would increase especially if most banks do not raise their deposit rates as often as expected.

2  Invest in the SET or short-term fixed income

For those who can accept higher risk, investment in stocks will be a good channel next year under the assumption that the economy will recover after the newly elected government steps in.

The SET Index is a leading economic indicator. It is widely accepted that the Thai bourse will turn bullish ahead of the line-up to be announced following the political party winning the highest number of seats. It is a consensus among stock analysts that the SET Index is expected to rise above 1,000 next year.

 Some sectors would obtain more benefits than other sectors due to the policies introduced by the new government and mega-investment projects, particularly the mass-transit system. Construction, cement and other related sectors should boost sales and income from the investment expansion, and thus are highly recommended stocks.

Moreover, the property sector would get a "crowding-in effect" from public investment. Developers could introduce housing projects along mass-transit lines. This would lead to advantages for other related sectors, such as furniture, paint and air-conditioners.

Amid the upward trend of interest rates, investing in the long-term bonds and debt securities is not a good choice because their prices would decline when interest rates increase.

Bondholders would not receive the full face value amount if they sell bonds before the due date. They would not suffer losses if they hold bonds until the maturity date, but would lose opportunity when market interest rates climb.

3   Mortgages and car loans

Low and middle-income earners who have suspended their spending for durable goods like houses and cars should step out of the shadow of hesitation and buy big items.

Savers should have an optimistic view on the Kingdom's politics and economy with a belief that the prolonged gloomy picture will be abolished as soon as the newly elected government comes into office.

Moreover, interest rates have bottomed out, considering the spike in oil prices and increase in economic activities next year.

Thus, home or car-buyers should seek mortgages or hire-purchase loans in this golden period. This means that they can borrow at the lowest lending rate next year before the market rates begin to surge.

They should select the best loan package - a long-term fixed-lending interest rate.

4   Distribute deposits

Although the Deposit Insurance Agency (DIA), which is to be established next year, will give a blanket guarantee in the first year of implementation, depositors should begin to distribute their money gradually. Early distribution would smooth the banking system, which might be adversely affected by the panic of depositors in the second year when the agency reduces guaranteed payments.

The DAI will provide a full guarantee for deposits of Bt100 million per person per bank in the second year, Bt50 million in the third year and Bt25 million in the fourth year. After that only Bt1 million of deposits per bank will be fully guaranteed.

As a result, depositors should carefully study what types of savers they are and how strong is each commercial bank's financial health. They should distribute their deposits into various banks to make sure that they would receive as much money back as possible in case of bank bankruptcy.

If concerned with a bank's performance, they should study which banks have a sound financial status with competent and reliable management, not only in the short term but also in the medium term.

Actually, depositors do not need to put money only in large banks because they will receive lower interest rates than those offered by small and medium banks.

 5  Cut carbon footprint

If you felt that it was too hot in the past summer and too cold in the winter, you should participate in correcting it. Global warming is caused by everyone and has already become a front-door problem - not just an environmental but an economic and social one.

Each one of us could correct just a tiny thing in our routines, which will eventually build up into a large impact on the world. Everyone - individual, family, community and country - would obtain benefits from carbon-footprint reduction.

The economic environment encourages Thai people to be more cautious on spending. Increasing oil prices have inflicted a higher cost of living on Thais. The upcoming construction of a mass-transit system by the next government will lead to traffic congestion for years, although it will have large benefits for the country in the future.

Anoma Srisukkasem

 The Nation