Although the global economic outlook is improving, safe-haven assets like gold and silver remain at record highs, which may reflect growing concerns about the economy and global investments due to three risk factors, making the economic situation in Q4 resemble a black hole for risky asset investments.

When considering the investment landscape in Q3 as a whole, it aligns with what we and many analysts anticipated. The economy has recovered after contracting to near-historic lows in Q2, while global stock indices have begun to rebound, pushing many markets, especially in the U.S. and Northeast Asia, back above the end of last year. However, this recovery has started to show signs of limitation and some markets have begun to pull back in recent months.

Bond yields remain low, but safe-haven assets like gold and silver continue to reach all-time highs, while the dollar is at its weakest level in years.

We believe that the limited recovery of capital markets in the past week is due to three main reasons:

1. Continuous recovery in global economic indicators such as U.S. retail sales, inflation figures in the U.S. and the UK, and economic data from China. Meanwhile, U.S. unemployment claims were slightly lower than market expectations, all indicating ongoing signs of global economic recovery. However, when considering momentum, the recovery appears to be slowing, suggesting a decrease in pent-up demand.

2. Financial and fiscal measures remain relaxed but are slowing down. The outcome of the Federal Reserve's meeting aligned with market expectations, signaling that interest rates will remain low until at least 2023, in line with a policy shift allowing inflation to overshoot its target. However, the Fed's lack of signals for further monetary easing disappointed some investors, leading to reduced investment levels.

3. Increased uncertainty in various events, particularly regarding the U.S. elections, where concerns are rising that the results may be too close to call, making it difficult to determine a winner. This comes after President Trump's approval ratings have surged, with Trump signaling he may not accept the election results if he loses.

Looking ahead, we see that the global economic and investment outlook is becoming increasingly concerning due to three risk factors:

1. Economic indicators may show signs of slowing down due to the risk of a second wave of infections in many countries worldwide. Currently, the global number of infections has surpassed 30 million, with new daily cases reaching record highs of around 300,000. Countries experiencing continuous increases in new cases include emerging markets in Asia (especially India, Indonesia, and Southeast Asia), which collectively add about 100,000 new cases daily, Latin America with 60,000, and Western Europe with 30,000 daily.

As temperatures begin to drop, the likelihood of new infections will increase, leading to more economic activity shutdowns, particularly in recreational sectors, further slowing the economy.

2. U.S. economic policies may tighten. If Joe Biden is elected president and plans to increase the budget deficit, corporate tax rates may rise from a maximum of 21% to 28%, and personal income tax rates from 37% to 39.6%, along with wealth taxes. Such tightening economic policies are expected to impact the economy and investments in advance.

3. Increased uncertainty in various events, including the U.S. elections, which may lead to heightened tensions with China if Trump is re-elected, aggressive Brexit negotiations by the Johnson government with the EU, or even constitutional amendments and economic stimulus measures in Thailand.

In Thailand, the increasing economic risks have led SCBS to revise its economic forecast down from -5.9% to -7.8% per year, citing three risk factors:

(1) The rising number of COVID-19 infections worldwide prevents the government from allowing foreign tourists to enter the country this year, resulting in an estimated 6.7 million tourists (equivalent to the first four months of the year) and tourism revenue of 330 billion baht per year, an 83% contraction from last year.

(2) The Bank of Thailand (BoT) not extending the debt moratorium measures for SMEs, currently valued at 7.2 trillion baht or 12.5 million accounts, will lead some debtors unable to repay their debts to become non-performing loans and shut down their businesses, increasing the proportion of non-performing loans.

(3) The above two factors will lead to more closures in service-related businesses, especially in tourism and travel, resulting in higher unemployment rates. SCBS predicts that the unemployment rate this year will rise to 3.4%, or about 1.4 million people, up from 1.95% or 750,000 in Q2, significantly impacting purchasing power and the overall economy in Q4, with an expected contraction of about 8% instead of the previously anticipated 1%.

The economic situation in Q4, resembling a "black hole," will negatively impact investments in risky assets. In Thailand, although the government and BoT have measures to consolidate and restructure debts, as well as support struggling sectors like labor, tourism, and grassroots consumption through various projects, we believe that macroeconomic factors will exert a stronger influence on the economy, reducing the effectiveness of these measures.

Therefore, investors need to exercise greater caution in their investments, possibly opting for stocks with strong fundamentals, reducing investments in high-risk Thai stocks, and continuing to invest in gold to hedge against increasing risks in the near future.

A "black hole of the economy" awaits ahead; investors should exercise caution.

SOURCE: www.bangkokbiznews.com