In a financial market characterized by high volatility due to the special monetary policies of central banks worldwide, it is anticipated that policy interest rates will remain low for at least the next 3-4 years. Coupled with the uncertainty surrounding the COVID-19 situation, how should investors plan their investments?

The global economy is facing contraction due to the impacts of the COVID-19 pandemic, prompting central banks around the world to implement exceptionally accommodative monetary measures, including lowering interest rates to near zero and conducting quantitative easing (QE) to support the economy and maintain financial stability.

Most economists predict that it will take at least 2 years for the economy to return to pre-COVID-19 growth levels, leading to the expectation that global interest rates will remain low for another 2 years as well.

However, following the 2020 annual symposium of the U.S. Federal Reserve held in Jackson Hole on the topic of “New Economic Challenges and the Fed’s Monetary Policy Review,” the framework for monetary policy was revised from a flexible inflation targeting framework to an average inflation targeting framework. This has led most economists to adjust their outlook, suggesting that policy interest rates are likely to remain low for at least 3-4 years.

The prolonged low interest rates will undoubtedly impact the assets available for investment. As investors, it is essential to plan investments and adjust portfolios accordingly to compensate for the income lost due to low interest rates. This can be achieved by diversifying investments across various financial assets or securities to spread risk in line with the risk tolerance of the investor. Low interest rates support investments in financial assets or securities that provide yield play, offering consistent cash flow returns at rates higher than the benchmark interest rate. Examples of yield play assets include high-dividend stocks, bonds, and real estate funds.

High-Dividend Stocks are stocks that provide regular dividend payments to shareholders. However, caution is advised for short-term investments, as stock prices may decline in volatile market conditions, leading to potential losses from price fluctuations, especially amid uncertainties from various economic and political risk factors, such as a second wave of COVID-19, vaccine developments, and geopolitical issues.

Bonds are divided into government and corporate bonds, with investors receiving regular interest payments. In a declining interest rate environment, it is advisable to invest in long-term bonds rather than short-term ones, as long-term bond prices tend to increase more significantly, resulting in greater capital gains. Corporate bonds typically offer higher returns than government bonds; however, investing in corporate bonds carries a higher risk of default, particularly during economic slowdowns.

Real Estate and Infrastructure Funds provide investors with benefits from regular rental income or service fees, and the assets these funds invest in tend to be more resilient to economic fluctuations than common stocks. However, real estate and infrastructure funds are traded on secondary markets, so their prices may fluctuate according to market conditions, and investments carry risks during economic downturns that could affect fund income.

Gold may not be a yield play asset, but prolonged low interest rates could lead to expectations of higher inflation. Therefore, gold serves as a hedge against inflation risk, and in uncertain times, it acts as a protective asset that reduces portfolio volatility.

In a financial market characterized by high volatility due to the exceptionally accommodative monetary policies of central banks worldwide, along with uncertainties from COVID-19, investors must closely monitor economic conditions and market trends. Understanding the assets to invest in is crucial to align with acceptable risk levels. Investors can choose to invest through fund management companies with expertise and experience in investments, seeking advice from knowledgeable investment advisors before making investment decisions.

SOURCE: www.bangkokbiznews.com