Hold onto cash and invest mainly in debt instruments

Analysts recommend that those who want to bet on the stock market snap up only dividend plays and stocks with high cash flow.

Thanachart Securities senior vice president Pichai Lertsupongkit said investors should underweight stock investment even though share prices were below book value, given that the capital outflow from the Thai stock market would continue.

The world's economy will worsen even further in 2009, with growth of a mere 2 per cent, while economic growth in Thailand will drop to only 0.8 per cent, he said.

Pichai predicts growth in listed companies' earnings per share will plunge to minus 18 per cent in the coming year.

He said investors should also watch closely how long the present government was able to remain in office.

Investors who are taxpayers should think about investing in longterm equity funds (LTFs) and retirement mutual funds (RMFs) ahead of allocating their remaining assets, because this will enable them to immediately gain tax benefits.

To mitigate risk and lock in interest rates before further rate cuts are made, 40 per cent of money left over from LTF and RMF investment should be allocated to bonds with one to twoyear maturity and credit ratings of "A" or higher.

"Interest rates are in a downward trend now. If economic recovery is seen in 2011, bond yields will rebound, and this will be an opportunity for higher returns," he said.

Pichai said investors should allocate only 2030 per cent of their portfolios to equity, while those who were riskaverse should limit it to only 10 per cent.

They should pile up defensive stocks providing dividend yields of 67 per cent, and investments should be made in phases.

Advanced Info Service (AIS), CP All, Thai Tap Water Supply (TTW), Thai Union Frozen Products (TUF) and BEC World are recommended stocks, given their high dividend yields and ability to weather the financial storm.

AIS is a highdividend play, providing an average dividend yield of 8 per cent over recent years. It has a high cash flow and benefits from strong demand for mobilephone services upcountry.

CP All is expected to record profit growth of 41 per cent next year after 117percent growth this year. Its earningsgrowth forecast for 2009 is based on assumptions that the company will sell its lossmaking Lotus in China unit, its business will remain resilient to the economic slowdown and expansion will continue.

TTW has delivered average dividend yields of 8 per cent over recent years, and its business remains promising. The company is expected to offer returns on equity of 22 per cent next year.

TUF has consistently offered high dividend yields of about 6.5 per cent and is a competitive company.

Leading televisionchannel operator BEC has provided high dividend yields averaging more than 6 per cent in recent years. Moreover, its sources of income are well diversified.

Investors should allocate 10 per cent of their portfolios to property funds, because prices are relatively low and they offer high dividends.

Another 1025 per cent should be held in cash or invested in moneymarket funds, so it can be shifted promptly into the stock market when conditions become more favourable, Pichai said.

Therdsak Thaveeteeratham, head of research at Asia Plus Securities, recommends half of investors' portfolios be allocated to equity but focused on stocks with high cash flow and dividend yields of more than 6 per cent.

These stocks include AIS, Banpu, Big C Supercentre, BEC, Bangkok Dusit Medical Services, Dynasty Ceramic and Siam City Cement.

For those who are riskaverse, sixmonth fixedincome funds with a policy of investing in local debt instruments or moneymarket funds are an option to lock in interest. These funds include UOB Sure Daily, Thanachart Money Market Fund and K Treasury Fund.

However, if they do not have plans to spend money in coming years, it should be invested in debt instruments that will come due in the next two or three years to lock in interest rates ahead of further rate cuts. Economists expect the Bank of Thailand's Monetary Policy Committee to slash the oneday repurchase rate another 11.25 per cent following the surprise cut of 100 basis points earlier this month.

Adisak Kammool vice president for economics and strategy at KGI Securities, said investors should allocate their assets to match their acceptance of risk, because the country's economy was expected to get worse in the coming year.

Extremely riskaverse investors should hold 70 per cent of their investment portfolios in cash and invest the rest in government bonds or firstclass debentures.

Those who can accept some risk should hold half in cash, invest 30 per cent in government bonds and firstclass debentures and allocate the remaining 20 per cent to the stock market to avoid the possibility of loss if the bourse returns to a bull run.

Investors should also choose the right time for stockmarket investment, in order to prevent loss. Buying bluechip stocks is still recommended, he said.

Pongrat Ratanatavanananda, head of research at Bualuang Securities, said investors should hold 43 per cent of their investment portfolios in cash, then invest 41 per cent in unit trusts of property funds, 9 per cent in gold and gold futures, 3 per cent in threeyear government bonds, 3 per cent in commodities and only 1 per cent in stocks.

The stock market will not be attractive next year, because of the prevailing economic slowdown, she said.