As fears over potential economic downturn loom, along with inflationary pressures and soaring interest rates, investors across the globe are treading cautiously. For many stock market aficionados, it’s commonly agreed that we are nearing the peak of global interest rates, while central banks are keeping a keen eye on inflation trends. In July, the US Federal Reserve took the bold step of lifting the federal funds rate to a steep 5.25-5.50%, the highest it’s been for many a year. Additionally, the European Central Bank jumped the gun with a 0.25% rate hike, and it appears the Bank of Japan might finally loosen its tight grip on cheap money, adopting a more adaptable methodology for yield control on government bonds.
From the perspective of Amonthep Chawla, head honcho at CIMB Thai, the consensus among investors is that the Fed will play it safe and avoid any further interest rate hikes attributing the decision to slower paces of inflation. Moving over to Europe, the ECB made headlines when it increased its policy rate to 4.25% in July. It’s the expectation of many investors that the ECB will put its foot on the brakes for a while in order to gauge the economic hazards that’s likely to come, affirms Amonthep.
Even when it comes to Japan’s distinctive Yield Control Strategy (YCC), which aims to control yield curves and keeps long-term interest rates down, Amonthep expresses a certain level of skepticism – citing distortions in the markets. In his eyes, it’s high time that the YCC strategy is gradually phased out. Discussing Asian central banks, he’s of the view that they are getting closer to the tail end of their battle against inflation, a fightback that started last year.
Nattakrit Laotaweesap, the astute financial navigation guide of Tisco Bank, sends out a word of advice to both clients and investors that it might be best to step away from U.S. investment assets, which includes everything from real estate trusts to U.S. stocks in the mighty S&P500 Index. A word from the wise at Morningstar Research (Thailand) is that investors would do well by concentrating their efforts on long-duration bonds to experience a healthy surge in long-term yields in fixed-income assets during the current year.
On the other hand, Kampon Adireksombat, Chief Investment Officer at SCB, offers a word of caution against high-yield bonds that are directly tied to Chinese real estate, thanks to the burden of debt and sluggish recovery rates. In his forecast, he sees Japanese stock market experiencing short-term volatility triggered by increasing government bond yields, but also predicts a recovery, accomplished by the stabilization of government bonds and yen. Back in the US, Kampon asserts that banking stocks stand to gain the most ground from rising bond yields as the yields on both new loans and refinanced loans move upward.
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