After years of high liquidity and loose monetary policy, investors are now having to face rising interest rates and increased volatility as Western central banks glacially shift towards quantitative tightening.

The late-cycle stock market is still the best bet, though, say some leading Thai investors, so long as you pick the right countries, diversify, and stay on your toes.

“We’re still in the late cycle of the economy, so I still agree that we should all bet on equity these days and try to focus on the markets that have pretty strong domestic demand,” Thanakorn Manoonol, head of investment and product solutions for private banking at CIMB Thai Bank, said at AsianInvestor’s 2nd Thailand Global Investment Forum earlier this month.

The quantitative tightening (QT) already kicked off by the Federal Reserve as it tries to slim down its bloated balance sheet after years of bond buying, and which could yet be mimicked by the European Central Bank, is making fixed income look less attractive, he believes.

As a result, CIMB Thai Bank is cutting its bond allocations and balancing its portfolio on the equity side through diversification, Manoonol told the audience.

With global markets and economies diverging this year, being selective is key, he added.

“China, even though it got hit a lot, we still think the valuation is on the good side, but the market is not that good. China will be one of the examples where I say that domestic demand is strong,” Manoonol said.

Increasing volatility also means that investors need to be able to act fast in order to take advantage of the changing investment opportunities.

“I encourage my team to trade more because you have seen a lot of volatility in the market; if you do nothing, you get nothing,” Sukkawat Prasurtying, chief investment officer for AIA Thailand, said on the same panel.

The market is moving fast, for both equities and fixed income, and investors need to keep a close eye on the market if they want to make more money, Prasurtying said.

ETF ROLE

Still, finding alpha in global equities can be difficult for active managers, which is where exchange-traded funds (ETFs) come into the picture, Win Phromphaet, chief investment officer at CIMB-Principal Asset Management, said.

Win Phromphaet

The Thai fund house uses ETFs to construct its global equities portfolios because it’s extremely difficult for active managers to make money in the long run, Phromphaet told the audience.

Using ETFs also helps it to be properly diversified, he added. For example, CIMB-PAM uses ETFs to mix large-cap and mid-cap A shares in its China equity fund.

We noticed that if we only do large-cap A-shares, more than half your money is in banking and insurance companies, so its tilted towards one sector, and If you do mid-caps only, then it’s more industrial and local businesses, Phromphaet said.

“I have to mix them together so that my China fund will be more diversified, so I mix that with ETF as my tools,” he said.

Thai and regional investors would do well to pay close attention to ETFs due to their growing importance, Phromphaet said, noting how some $6 billion has flowed out of the Thai stock market this year, most of it through ETFs and passive funds, and how portfolio capital flow has flowed into China after A-shares were added to the benchmark MSCI emerging market index.

“Even if we are an active manager, we cannot ignore ETFs, and we can make use of it to our advantage and to construct portfolios,” he said.

FIXED INCOME AND PROPERTY

To be sure, some Thai institutions such as AIA Thailand see opportunities in fixed income as well, especially with interest rates rising.

“Going forward, I think we might be able to pick and choose more because if the rate is really increasing, meaning that the whole economy is getting moving at a normal pace, demand for money is more and corporates will need more money, so we can increase our return,” Prasurtying said.

CIMB Thai Bank also sees future opportunities in fixed income, especially in emerging markets.

“We’re still waiting for the entry point for selective emerging markets for equities, and also EM bonds as well. I think starting in autumn, we’ll see some room for us to get into that asset class,” Manoonol said.

In addition, the private bank is looking to lower the risk in its client portfolios by increasing the liquidity buffer, such as investing in property via real estate investment trust investments (Reits), he said.

The higher liquidity in Reits has proven attractive to asset owners in other parts of Asia-Pacific as well, with Korea's Public Officials Benefit Association (Poba) investing about $80 million into the asset class this year, after having no investments in Reits last year. Meanwhile, overseas private Reits are preferred among Japan's asset owners because they provide better diversification opportunities and more stable yields than publicly traded domestic Reits.