SCB WEALTH Partners with 4 Business Allies to Analyze Economic and Investment Trends for 2024, Indicating that U.S. Policy Interest Rates Are Likely to Decrease in the Second Half of 2024. Stocks are expected to yield returns of 5-10%, with increased market volatility before gradually improving towards the end of the year. InnovestX views this as a year of uncertainty, keeping an eye on 3 economies, 2 wars, and 2 elections. It is recommended to include the '7 Angel Stocks' in the portfolio, as these stocks have substantial cash reserves, low financial costs, and the potential for superior performance compared to the market. India and Japan also present interesting opportunities, especially as the Fed begins to lower interest rates. Long-term bonds with high quality are recommended for investment, while growth stocks are expected to outperform value stocks.

Dr. Kampon Adireksomphat, Senior Director and Head of SCB Chief Investment Office (SCB CIO) at Siam Commercial Bank stated that the global economic outlook for 2024 is likely to slow down, but the slowdown will not be uniform across countries (Uneven slowdown). Interest rates are expected to remain high for an extended period, with the Fed likely to start reducing rates in Q3 of 2024. Investors should monitor risks such as 1) the risk of slow economic growth coupled with high inflation (Stagflation), 2) the risk from businesses facing significant debt maturities that may require refinancing (Rollover risk) at much higher interest rates, and 3) political and policy uncertainties arising from elections in key economic areas, which could lead to geopolitical risks. In this context, SCB CIO recommends investing in high-quality assets, including Investment Grade bonds, and gradually accumulating stocks in the U.S., Japan, India, and Thailand that exhibit Quality Growth with consistent profit growth and strong balance sheets.

Dr. Somchai Amorntham, Assistant Managing Director of Investment Strategy and Client Relations at Krung Thai Asset Management Co., Ltd. mentioned that interest rates will increasingly impact investments, with the market believing that U.S. policy rates will not rise further and will begin to decrease in May 2024 (as of November 27, 2023). However, we believe it may be too early; U.S. policy rates are likely to decrease in the second half of 2024. The manner in which rates are reduced is quite significant. If the economy gradually slows down and rates decrease slowly, it should not be a concern. Investment in stocks may still have opportunities for growth, but if the global economy slows down rapidly, leading to a quick reduction in interest rates, it could result in significant market volatility and declines.

Regarding the overall economy, concerns about a recession have not dissipated. In the U.S., consumer demand appears to be slowing, with some negative indicators emerging, and the economy remains at risk due to a slowdown in infrastructure investment. Political issues in 2024 will also be crucial to monitor, as there will be elections in several key areas, including Taiwan, Indonesia, India, and the U.S. Historical data shows that during 15 previous elections, the stock market mostly reacted positively, with only 2 instances of negative performance: during the year 2000 and the 2008 financial crisis.

Overall, it is suggested thatportfolio management should focus on a balanced approach between investments in bonds and stocks. For bonds, the emphasis should be on investments that expect cash flow, while for stocks, there are still long-term investment opportunities unless interest rates decrease sharply. In 2023, we expect global stock markets to yield returns of about 15%, while in 2024, returns are projected at 5-10%, indicating positive returns but with increased volatility before gradually improving towards the end of the year.

Dr. Piyasak Manasan, Senior Director of Investment Research at InnovestX Securities stated that 2024 will be a year of uncertainty, with key issues affecting investments to watch being “3 economies, 2 wars, and 2 elections.” The 3 economies include the U.S., China, and Thailand. We believe the U.S. economy may face a slight recession in the second half of the year, but the overall outlook for 2024 will be slightly positive. The Chinese economy has the potential to improve from 2023, while Thailand's economy needs to be monitored for the rollout of digital wallet measures, which could stimulate consumption and impact economic figures, along with other government initiatives such as building Soft Power and attracting foreign investors.

The 2 wars refer to the Israel-Hamas conflict, which is beginning to show signs of negotiation, with expectations that the war may conclude in the first quarter of 2024—not as a complete end, but in a manner without new developments—and the Russia-Ukraine war, where Donald Trump, a presidential contender, may not support funding for Ukraine. If Trump gains popularity, it could pressure President Joe Biden to push for negotiations to end the war.

The 2 elections include the election in Taiwan, where a party less opposed to China is likely to be elected, reducing the risk of war, and the U.S. election between Trump and Biden. If Trump is elected, it may be favorable for the Russia-Ukraine situation but could create risks in other areas, such as achieving greenhouse gas reduction targets, as Trump does not support renewable energy. Additionally, trade wars may resurface, and Trump is likely to side with Israel and Saudi Arabia while banning Iran, potentially increasing tensions in the Middle East. At the same time, Trump’s focus on reducing government spending could impact stocks related to infrastructure investment in the U.S. Bonds may see an increase in government bond yields if investors lose confidence in Trump's administration.

Mr. Itthipol Prasongsub, Senior Investment Advisor at SCB Julius Baer Securities stated that 2024 is likely to be a good year for investments in both bonds and stocks, with concerns about inflation easing. The economy is expected to slow down, and further interest rate hikes are unlikely, with rates expected to be maintained. However, rate cuts are anticipated to occur three times, starting in May 2024, in a gradual manner. The interest rate factor is crucial to monitor as it impacts investments. In the absence of a severe recession, we believe there will be no urgent need for rapid rate cuts.

In this environment, we recommend investing in bonds and stocks that benefit from interest rates having peaked. We believe that investing in long-term bonds carries minimal risk of loss, and for high-quality bonds rated at Investment Grade, there is a good chance of receiving relatively high interest returns, along with potential capital gains. Given the ongoing economic slowdown risks, we advise avoiding investments in high-yield bonds.

For stock market investments, we believe it is essential to include the '7 Angel Stocks' or shares of 7 large technology companies in the U.S. stock market in the portfolio as this group continues to show strong quality growth, benefiting from the surge in A.I. investments. Additionally, they have substantial cash reserves and low financial costs, and if the economy does not deteriorate significantly, this group has the potential to outperform the market. In the Asian stock market, while the Chinese stock market faces structural and economic issues, other markets like India appear more attractive due to ongoing economic growth. The Japanese stock market is also appealing due to continuous capital inflows from governance reforms, share buyback programs, and support for return on equity (ROEs), with private assets expected to improve in 2024 if there is no recession, leading to increased fundraising in the private market.

Mr. Wararit Jirachon, Head of Investment Research at SCB Asset Management stated that the U.S. Federal Reserve (Fed) will gradually reduce policy interest rates by the end of 2024, with the global economy expected to slow down gradually. The increasing risks include the visible impact of the Fed's past interest rate hikes, leading to increased interest expenses for U.S. companies, particularly those with high debt-to-equity ratios and low profitability, who will be affected first. Additionally, the rapidly changing investor sentiment regarding asset and debt management is something to closely monitor.

As the Fed begins to lower interest rates, long-term bonds will benefit more than short-term bonds due to the expected decline in yields. Before the rate cuts, it is advisable to accumulate long-term bonds to benefit from future yield reductions, and to select high-quality bonds that offer high interest rates and have good asset and debt management capabilities. During the period when the Fed reduces interest rates, growth stocks are expected to outperform value stocks.