US Fed's cuts hit local asset firms

Last year was especially fruitful for the investment industry, lifted by loose overseas regulations and a favourable rise in interest rates. Assets under management rose 31.8 per cent or Bt1.6 trillion.

Kasikorn Asset Management has boosted sales in its fixed-income foreign investment funds. Eleven such funds contributed Bt66 billion to turnover of Bt84 billion last year.

But the party appears to be coming to an end.

"The gap [between the Fed rate and the Thai borrowing rate of 25 basis points] has widened and returns, once all costs are factored in, are not as attractive any more, said Wiwan Tharahirunchote, executive vice chairwoman of Thailand's second-largest asset-management firm by AUM. The shortened credit spread has made investment in corporate bonds and US treasury notes less attractive, said Somchai Boonmasiri, chief executive of Krungthai Asset Management, who has increased the number of domestic bond funds to accommodate the flow.

"This year's investment strategy for foreign investment funds will be characterised by themes, regions and sectors," said Wiwan.

But not everyone shares this view.

Tivarat Taychamekiatchai, executive vice president of One Asset Management, believes the growing discrepancy between the two rates - with some investment houses forecasting a Fed rate of 1 per cent - is ripe for hedging.

Though One Asset has been cautious like K-Asset, it will roll out a new FIF, investing by sector specifically in corporate energy bonds. The bond market is still dependent on liquidity.

Wiwan said commodities including farm products and alternative energy sectors would prove to be the industry's saving grace, regardless of whether the world experiences a mild recession or a marked slowdown.

"If you look at the trend, when the equity market and dollar weaken, commodity prices tend to rise," said Tivarat.

Wiwan also believes agricultural commodities have so far been relatively immune to widespread inflation.

Kasikorn Asset Management has seen its asset under management rise by 32.25 per cent or Bt77 billion to Bt318 billion last year.

It has 22 funds in the pipeline, eight of each are in FIF and fixed-income funds.

A property fund has also been planned. To date, the company has sold Bt10 billion from its first lot of two fixed-income FIFs.

Ki Nan Tsui

The Nation