Go with stocks that beat inflation

GOLD is an inflation-hedge investment channel, but experts only recommend it for long-term investors due to high market volatility.

With inflation shooting to a 10-year high at 8.9 per cent last month - sparking a possibility the full-year average may touch 7 per cent - investors are forced to seek any channel that can beat inflation.

It isn't easy, even for sophisticated fund managers to boost returns amid the current situation.

A Bank of Thailand official recently warned double-digit inflation in July and August was possible, while the Commerce Ministry forecasts inflation of 7 per cent for this year. Inflation has already soared to 6.3 per cent in the first half.

That means we need to find any investment yielding more than 7 per cent.

Apparently, experts still recommend stocks as the top choice for investors to stay ahead of inflation.

Experts have provided information on which stocks are expected to pay dividends at over 7 per cent of their prices and stocks that have been all-time hedges against inflation.

Poranee Thongyen, vice president of Asia Plus Securities, said recently that PTT Exploration and Production (PTTEP) and Thai Tap Water Supply are the two stocks that can weather inflation the best.

PTTEP is the greatest beneficiary from the run-up in oil prices while Thai Tap Water can raise its water rates based on the inflation rate, she said.

Asia Plus Securities said in a note that 17 stocks under its coverage would offer dividend yields of over 7 per cent.

Based on Wednesday's closing price, SC Asset Corp would provide the highest dividend yield of 11.61 per cent, Supalai would be second with 11.22 per cent, followed by Property Perfect with 10.75 per cent and Thai Trade Metal with 10.17 per cent.

In the 9-per-cent dividend yield range would be MCS Steel with 9.83 per cent, Demco with 9.47 per cent, Thai Plastic and Chemicals with 9.3 per cent and Kiatnakin Bank with 9.01 per cent.

The 8-per-cent dividend yield range would see Syntech Construction and Navanakorn at 8.77 per cent each, Thanachart Capital at 8.56 per cent, Vanachai Group at 8.28 per cent and Cal-Comp Electronic (Thailand) at 8.06 per cent.

MK Real Estate would provide a 7.77-per-cent dividend yield, pipping Delta Electronics (Thailand), Baan Rock Garden, and Thai Vegetable Oil at 7.61 per cent, 7.37 per cent and 7.17 per cent, respectively.

Sixteen of the 17 stocks are estimated to have as much as triple- or double-digit upside gain from market prices.

In terms of capital gain, Syntec would offer a 135.08-per-cent return from its fair value at Bt1.34, Property Perfect would return 131.95 per cent from a fair value of Bt6.41 and Navanakorn would provide a 108.19-per-cent gain from a fair value of Bt3.56, the brokerage said.

Baan Rock Garden is expected to offer a handsome capital gain of 90.53 per cent from its fair value of Bt1.81, followed by Supalai at 63.95 per cent from its fair value of Bt4.82, Property Perfect at 60.25 per cent from fair value of Bt6.41, Kiatnakin at 54.16 per cent from fair value of Bt39.31 and MK at 50.49 per cent from fair value of Bt3.10.

Demco shows an upside gain of 45.79 per cent from its fair value at Bt5.54, followed by Thanachart Capital at 37.31 per cent from fair value of Bt18.40, Cal-Comp at 38.51 per cent from fair value of Bt6.87, Vanachai at 34.11 per cent from fair value of Bt4.05, Delta at 29.95 per cent from fair value of Bt25.60, Thai Trade Metal at 24.07 per cent from fair value of Bt7.32, MCS at 19.38 per cent from fair value of Bt4.25 and Thai Plastic at 13.72 per cent from fair value of Bt24.45.

Trinity Securities said in a research note on "How to Play on Cold Economy and High Inflation" that it recommends inflation-hedge sectors comprising energy, steel and agriculture.

"PTTEP would benefit the most from the rising oil prices. We recommend to buy Banpu on a pure coal play. We also like alternative energy such as AI (Asian Insulators) and TVO. For steel, we recommend 'buy' for TSTH [Tata Steel Thailand] and GSTEEL [G Steel]," the brokerage said.

Aside from stocks, gold is still another good choice for inflation hedging.

But this precious metal is not for speculators, as experts suggest gold investment for only long-term investors due to high volatility in the market.

Over the past four to five years, returns from gold have been around 10 per cent per year except last year when the return jumped to 20 per cent. But next year, the gold return is expected to fall back to about 10 per cent, depending on oil prices and the US dollar, said Panasin Gleeblumjeak, chief trader at Ausiris.

Many experts have said gold prices could climb to US$1,000 (Bt33,200) next quarter if oil prices surge further.

Jitti Tangsith-pakdi, president of the Gold Traders Association of Thailand, earlier said the gold price could rise this or next quarter and may break its historical high of $1,034 recorded on March 17, and even touch $1,100.

But experts warn that before jumping in, look that the price is right to enter. They suggest investors start accumulating gold at $850 to $860 an ounce, which is also this year's average price.

Bullion for immediate delivery, which has gained 13 per cent this year on rising oil prices and a falling dollar, was down 0.2 per cent at $942.95 an ounce in Singapore yesterday. The price earlier rose as high as $945.68 - not far from the $946.08 reached last Tuesday, the highest level since April 18.

Property is always mentioned as another inflation-hedged investment channel for investors after stocks and gold.

But which type of property should we consider?

Experts have recently predicted that condominium prices are expected to fall at the end of this year, which could present a "buy" opportunity for long-term investors.

Because Thailand lacks any city planning, buying luxury condos located near the Skytrain or subway and putting them up for rent would be a safer investment.

But if you don't have several million baht to spare, property funds would be an interesting option.

Anusorn Buranakanonda, managing director of BT Asset Management, suggests that investors look to property funds that could generate regular incomes.

But avoid property funds, particularly those invested in hotels and resorts, whose incomes could be affected by seasonal factors.

Freehold properties would allow a fund to gain also from land price appreciation, according to Natree Panassutrakorn, senior property fund manager with MFC Asset Management. The funds could pass on these gains as profits to their holders.