Pornchai
Pornchai

Normalisation of monetary policy could impact global stocks, expert cautions

Economy September 11, 2018 01:00

By   PHUWIT LIMVIPHUWAT
THE NATION

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STOCK prices could take a hit if there is a reduction in global money supply, Pornchai Prasertsintanah, Thailand’s country manager and head of South Asia Equities of Credit Suisse Securities (Thailand) Ltd, said.



In the next two to three years, the global money supply will be the most important factor in influencing the change in global stock prices, Pornchai said at an annual press interview. 

“From 2008 to today, there has been a significant increase in global money supply, which is one of the key factors pushing up global stock prices and asset prices”, he explained. “Hence, if there is a reduction in the global money supply, it will have a big impact on stock prices.”

Credit Suisse is one of Thailand’s top foreign institutional brokers, a leading investment bank in Thailand as well as a wealth management firm. It established itself in Thailand in 2000 and led Thailand’s first-ever concurrent convertible bond offering and equity placement in 2017. In the past 10 years, Credit Suisse has completed 27 equity and equity-linked transactions, raising US$9.1 billion for Thailand-listed companies. 

“The biggest swing factor in global money supply in the past five to six years has been the role of the government in different countries. Governments are trying to normalise their monetary policy, which has been ‘super easy’ since the 2008 global financial crisis. I believe this will be the most important factor influencing stock prices in the coming years,” said Pornchai. 

Normalisation in monetary policy will involve an increase in interest rates, which will decrease money supply in the economy, which in turn will lead to a fall in stock prices. 

Speaking about the global trade war, Pornchai warned investors to be more on the cautious side in the next 12 months. There is a high level of difficulty in forecasting what the trade policies of the US and China will be, hence it constitutes a risk factor investors should be aware of. 

“Despite this worry, we think the trade war is more of a negotiation game,” he said. “All parties involved in this trade negotiation want what is best in the economic interest of their respective countries. Hence, both sides will eventually settle for negotiations and avoid an all-out trade war.”

Pornchai said that despite these geopolitical risks, there were promising prospects for economic growth and stock market stability for the rest of this year. However, he said there would be a higher risk for investors with regard to the stock market next year, as trade wars often have a lagged effect on the economy.

Meanwhile, the Stock Exchange of Thailand (SET) has been performing relatively well with increased investments in new types of bonds as well as investments abroad, Pornchai said. Various investors in Thailand are becoming more interested in investing abroad. Since 1997, Thailand’s government has been implementing capital control measures and gradually loosening the extent of control over capital flowing out of the country, according to Pornchai. As Thai investors have mostly been investing in Thailand, a large portion of their total investment capital is in Thailand. Therefore, Thai investors are now looking to invest in foreign markets to diversify their risks and to capitalise on profit opportunities in foreign emerging markets, he says.

This growing interest to invest abroad has led to the purchasing of new investment instruments such as perpetual and convertible bonds in Thailand’s stock market, said Pornchai.