CREDIT Suisse investment analysts predict that the US dollar will stay strong this year, while most Asian currencies remain weak, including the baht.
At the firm’s annual Market Outlook Seminar, attended by more than 200 Thai clients and guests, four Credit Suisse analysts provided a comprehensive outlook on global financial markets.
They were John Woods, chief investment officer for Asia-Pacific, Robert Parker, senior adviser on investment strategy and products, Heng Koon How, senior investment strategist for Asia Pacific (foreign exchange), and Dan Fineman, head of Thailand equities research.
Financial markets are likely to remain challenging in 2017, they said. Growth in global gross domestic product is expected to accelerate slightly, from 3.1 per cent to 3.5 per cent, albeit with pronounced regional differences.
In combination with a slight rise in inflation and some monetary tightening, most asset classes are expected to generate low returns. Fundamental economic and social tensions provide an uncertain backdrop for investors. Credit Suisse’s top three Asia-Pacific investment themes are as follows.
Theme 1: The global infrastructure equities outlook is strong under expansionary fiscal policy
Global infrastructure stocks are beneficiaries of a trend across both developed and developing countries towards infrastructure investments. Asean is expected to spend more than a trillion dollars through 2030. Infrastructure investment is a key driver for Asean governments to stimulate economic growth.
Theme 2: The outlook for China equities remains positive
In equities, the Credit Suisse experts favour China, where the domestic economy should surprise on the upside. They remain positive on China equities given attractive valuation, a relatively stable political environment and a better economic outlook as the producer price index, retail sales, industrial production, and exports reflect a healthy economic recovery.
Theme 3: Investing in an environment of rising interest rates: Declines in real yields drive re-pricing of central-bank expectations
The anticipated trajectory for interest-rate increases is likely to be reasonably shallow, which suggests that some fixed-income instruments will perform better than others. The experts think the senior loan space is likely to perform well given that it offers some protection against a further rise in bond yields thanks to its floating nature, a strategy that still looks appealing in US dollars.
Separately, they expect Asian US-dollar investment-grade credit to post total returns of around 3-6 per cent in 2017 supported by ample demand
for yield.
Heng said the company expected the US dollar to remain strong this year as the US Federal Reserve proceeds with its gradual interest-rate increases and the US administration pushes forth with its fiscal stimulus. In Asia, most Asian currencies are likely to remain weak, with renewed depreciation in the yuan likely.
In Thailand, thanks to robust trade and current-account surpluses, the baht had a strong start to the year. However, renewed baht weakness is likely going forward, Heng said. Thailand’s economy has yet to recover meaningfully, export recovery appears uncertain and domestic consumption remains weak. Overall, in line with broader strength of the dollar, Credit Suisse believes the baht is likely to continue to weaken.
Parker said global GDP growth should improve, with the US at 2.5 per cent, the euro zone at 1.7 per cent and Japan at more than 1 per cent, and the firm also sees that growth is improving in emerging economies. Against this backdrop, he and his colleagues think the key risks are interest-rate increases and a strong dollar in the US, political developments in Europe, an appreciating yen and capital flows for emerging markets.
Taking into account risk and rewards, investment opportunities should focus on short-duration fixed income with a focus on credit risk, US-dollar currency exposure, emerging FX and fixed-income assets, domestic equity sectors in the US, exporters outside the US and such sectors as information technology, healthcare and infrastructure globally.
