Financial uncertainties and a global economic slowdown have prompted investors to reduce their exposure to high-risk assets, which could change market conditions, says Tisco Asset Management (TISCOAM).
The risk-averse sentiment was prompted by tightening monetary policy across the globe, a narrower gap between short- and long-term bond yields and signs suggesting slower global economic growth, said Saharat Chusuwan, head of marketing, wealth advisory, mutual fund and private fund business at TISCOAM.
Effects from the Sino-US trade spat have pressured purchasing managers' indices across the globe, with the growth outlook of corporate earnings poised to decline.
Earnings growth of the MSCI World index declined from 22.5% in 2017 to 16.6% in 2018. The index's earnings growth is expected to continue declining to 11.6% and 9.6% for this year and next.
"From an international fund manager survey, fund managers around the world are overweight on cash, close to the same level since the Hamburger Crisis in 2009," Mr Saharat said. "If market conditions change positively, there will be a return of inflows and investors will be ready to invest in high-risk assets again."
Possible scenarios include a delay in global interest rate normalisation and positive developments in geopolitical conflicts, he said.
A positive resolution of the trade dispute between China and the US will also encourage investors to adopt a risk-on mode, Mr Saharat said.
TISCOAM forecasts global stocks worldwide to continue rising this year on expectations that central banks will adopt loose monetary policies and delay hiking interest rates amid slower global trade.
Global stock markets have shown a positive performance since early this year, with the top return asset identified as oil, which rose by about 19%, followed by Latin American stock markets (14.9%) and global stocks (7.8%), TISCOAM said.
Gold, considered among the safe-haven asset classes, is up by 3.1% year-to-date, the firm said.
The US Federal Reserve is unlikely to increase the fed funds rate this year, while the European Central Bank is not anticipated to make a move on interest rates until the third quarter or later, as the euro-zone economy still faces a risk of slowdown, Mr Saharat said.
The Bank of Japan is expected to continue keeping its policy interest rate at -0.1% and will maintain its yield curve control of the 10-year government bond at 0%.
The Bank of Thailand will probably focus on measures to uphold financial stability rather than raise the benchmark interest rate, Mr Saharat said.
