Money-market funds draw more interest

It is not only Thai investors who are enamoured with money-market funds. Around the world such funds have become the staple products for asset-management firms, said Sethaput Suthiwart-Narueput, president of SCB Asset Management.

The popularity of money-market funds is due to similarities with bank savings accounts, notably convenient access to the money, Sethaput said. But more importantly, it is the poor returns interest rates are yielding, coupled with the general economic gloom, which are driving investors from long-term investment, particularly in bonds.

Like many forecasts by brokerage houses, Sethaput also predicts three consecutive 25-basis point rate hikes, or 75-basis points for the year, by the central bank, which will push policy rates up to 4 per cent. But he said that this would by no means be as severe as the 13 consecutive hikes during the Asian financial crisis in the 1990s.

However, economic growth will have slowed by the year-end, with inflation, not withstanding the 10-year high in June, peaking at double-digits in August.

Sethaput believed that the Bank of Thailand should not have passed on higher living costs, driven by the soaring cost oil, by raising interest rates.

In the first five months, intermediate goods prices rose by 20 per cent, while those for finished goods increased by only 9 per cent.

Also, the baht has every possibility to strengthen further against the weak dollar.

Foreign direct investment in Thailand, which was at US$2.3 billion (Bt77.4 billion) for the first four months, looks to be on track to at least match last year's figure of $7 billion, which would make up for the $5 billion to $6 billion current-account deficit, he said.

As to the theory of decoupling, Sethaput believes that it would need China to accelerate by four to five times in order to offset the slowdown in the US. Simply put: it is a fallacy.

The credit crunch in the US would be a much more complicated knot to untie. "It is not like a demand problem," Sethaput said, who had a more straightforward solution. He said that the second can of sub-prime worms, taken out in 2006, is set to burst open later this year and in early 2009, when the two-year zero-per-cent interest period expires.

For Thai investors this means the gold price might go up as it historically does in a weak-dollar climate. And with commodity prices on the rise, agricultural businesses should benefit - while the transportation, telecom, services and manufacturing sectors would be "squeezed". 

The arrival of Sethaput at SCBAM ended months of speculation as to who would fill the shoes of Adisorn Sermchaiwong, who took up an executive vice president post with Siam Commercial Bank, and the subsequent departure of SCBAM's interim leader Kampol Adsavakulchai to TMB Asset Management.

With a long career in academic and research roles - as lecturer at the National Institute of Development Administration and an economist at the World Bank - Sethaput was an unlikely choice for one of Thailand's largest asset-management companies by assets under management.

The key drivers - Sethaput is a McKinsey alumnus - for SCBAM to improve its customer services in SCB's more than 900 branches, the company's main sales channel and make the products less complicated for customers.

"Products are easy to copy," he said. So to tap into the parent company's large pool of savers, bank staff must have the information and knowledge to close potential sales.