Global equities are assured of an overweight outlook as a positive global economic recovery is projected, but investors should be aware of a possible sharp correction if US bond yields rise quickly, says UOB Asset Management Thailand (UOBAM).
As global economic growth is expected at 3.9% this year, led by China at 6.6% and the US at 2.7%, and a low policy interest rate is poised to persist, global equities, especially those in emerging markets, have an upside possibility going forward, said UOBAM chief executive Vana Bulbon.
For Thailand, economic growth is forecast at 3.9-4.2% as projected by the Bank of Thailand and the Finance Ministry's Fiscal Policy Office, with exports and tourism the main drivers.
Public infrastructure investment projects are a supplemental factor propelling GDP growth, said Mr Vana.
UOBAM forecasts the US Federal Reserve will raise the interest rate three times this year, while other central banks are anticipated to keep their low policy rates unchanged to support economic growth momentum as inflationary pressure remains subdued.
There could be a correction in global share prices if inflationary pressure in the US overshoots market expectations, whereby US interest rates could be accelerated, said Mr Vana.
"Global equity markets are quite expensive, so markets would be sensitive to negative news and a market correction could easily occur. Higher financial volatility is expected this year, but such corrections will not be extreme since the global economy remains on a recovery path," he said.
"But if US bond yields increase more than market expectations or the US dollar appreciates at a faster rate, then these factors would cause a sharp correction in the global stock markets," said Mr Vana.
Even with volatility in the global stock markets, stocks remain the asset class with the highest projected investment returns in 2018, said senior director Rachada Tangharat.
But investors should consider adjusting their investment portfolios to be in line with changes in the market environment, said Ms Rachada.
Emerging market stocks still offer the highest returns, while mid- and small-cap stocks in Japan still have growth potential on the back of the Japanese government's economic stimulus package for small and medium-sized enterprises, she said.
UOBAM said the Stock Exchange of Thailand (SET) index will move in a range of 1,700 to 1,850 points, with businesses related to exports and tourism anticipated to record good performances.
A concerning factor is how lower-than-expected corporate earnings could induce capital outflows and dent the SET's upside gain outlook, said Ms Rachada.
UOBAM's assets under management (AUM) stood at 271 billion baht as of Dec 31, 2017. This comprised mutual funds at 170 billion baht, private funds at 79.9 billion, and provident funds at 21.4 billion.
The company projects to increase its AUM by 10% this year.
