Guru Speak

As we draw nearer to December, all eyes in the financial market are now focusing on the Monetary Policy Committee meeting this December 3. With the sharp slowdown in the global economy and dire domestic economic outlook, we are expecting to see a sharp cut in the policy interest rate from the Bank of Thailand.

Inflation, which has been a major concern for the MPC, has also been dropping sharply as commodity prices plunge, in some cases by nearly 70 per cent from peaks reached a few months earlier, in the face of bleaker and bleaker global economic prospects especially in the US.

The US problem now is no longer confined to the financial sector, as we are now seeing major industrial job providers such as in the automobile industry facing a no less dire situation.

All in all, the market is now expecting US unemployment to rise throughout 2009, again delaying the process of economic recovery especially in the housing, real estate and consumer sectors.

In Asia, countries including Thailand are pinning their hopes on domestic investment and consumption. Fortunately, due to healthy currentaccount positions, low debt burdens and substantially large foreign reserves, several countries in Asia can still push for governmentsponsored infrastructure investment to support growth in 2009.

However with this looming sharp slowdown, we certainly expect interest rates to nosedive in the coming months. Given the current level of commodity prices, we should be seeing a steep fall in inflation too. Therefore, a drop in interest rates of 75 to 100 basis points could be easily expected in the coming months. This will certainly have serious implications for how we allocate our investment portfolio.

I know it has been less than three months that we have been worrying about runaway inflation and higher interest rates, but the world has changed so quickly these days.

These dramatic changes call for a readjustment of our investment horizon for deposit and fixedincome asset classes. Longerterm deposits and longerdate bonds should help stabilise our portfolio returns and give us the luxury of more steady income. But as with everything in life, there is no need to rush and a more balanced view is always prudent.

We would recommend the usual cautious approach of slowly putting your money to work over next few months with more bias towards government and established, financially sound corporate issues. The tenor should be also spread out, with a bias toward three to five years. We expect that highgrade corporate issues should come to market at around 5 per cent plus yield for those tenors. And again, our deposit and fixincome portfolio should beat inflation.

For investors with more risk appetite who can tolerate temporary high investment value fluctuations, we also recommend a dip into stocks of wellestablished, stable companies and those paying high dividend yields. No one has said that the worst is over but some rays of hope may begin to shine and at this market level picking up blue chips paying 7 to 8 per cent in dividends, not counting any future capital gains, looks like a risk worth taking.

ADISORN SERMCHAIWONG is an executive vice president at Siam Commercial Bank.