InnovestX advises portfolio diversification amid US election, transition

Released on Monday, the outlook says the global economy is entering a crucial transition period. The robust US economic growth, high inflation, and tight monetary policies that characterised recent times are expected to give way to a slowdown in the US economy. 

Interest rates are projected to decline through 2025, with the focus on US economic and political policies following the November 2024 presidential election.

Sukit Udomsirikul, chief research officer at InnovestX Securities, highlighted key factors to watch in Q4 2024:

• Whether the US economy will continue to expand without entering a recession, as the market expects
• The outcome of the US presidential election, which will have lasting effects on both the global economy and politics due to the differing policies of the two parties
• The direction of the technology sector and its ability to maintain growth
• Further economic stimulus measures in Thailand beyond the digital wallet initiative.

The Thai economy is poised for recovery in Q4 2024, buoyed by the implementation of the first phase of the digital wallet initiative, which is expected to stimulate domestic consumption.

Sukit noted that the Thai stock market has already shown signs of recovery.

"The recovery in the Thai stock market during August and September can be attributed to resolution of the 'confidence crisis’, with stock prices returning again to reflect fundamentals. This is shown by the more than 30% increase in daily trading volumes compared to the eight-month average in 2024," he noted. 
 

Piyasak Manason, head of Economic Research at InnovestX Securities, provided a detailed outlook.

"In Q4 2024, the global economy, interest rates, and politics will enter a new era. Major economies are expected to slow down, especially in the manufacturing sector. Interest rates will begin a downward cycle following proactive rate cuts by the Federal Reserve, while global political dynamics will shift and become more volatile, particularly in the US, where the two presidential candidates have starkly different economic policies," he  explained.

He projected Thailand's economic growth at 3.5% for Q4 and 2.5% for the full year 2024. 

He also suggested the possibility of a 1.0% interest rate cut by the Monetary Policy Committee (MPC) in 2024.

Investment outlook

InnovestX forecasts that the SET Index will reach 1,500 points by the end of Q4 2024 and rise to 1,550 points in 2025. 

Sitthichai Duangrattanachaya, Senior Global Equity strategist at InnovestX Securities, stated that he expects significant market volatility in the fourth quarter, driven primarily by external factors such as the US presidential election, where polls remain close and the candidates' economic policies differ significantly. 

"However, the Federal Reserve's interest rate cuts will positively impact emerging markets (EM), where economies are growing faster compared to developed markets (DM)," he said.

For global investments, Sutthichai Kumworachai, head of Investment Strategy, advised:

"The global economy continues to expand steadily, though major economies are beginning to slow in a soft-landing scenario. The Federal Reserve's rate cuts are likely to prompt other central banks to follow suit, enhancing the appeal of emerging markets, including Thailand."

Meanwhile, the Thai economy is expected to recover in Q4 2024, aided by the implementation of the first phase of the digital wallet initiative, which aims to boost domestic demand.

As a result, the investment climate in Thailand's stock market is expected to improve relative to previous quarters. With government stimulus programmes such as the Vayubhak Fund and the digital wallet, InnovestX projects that the SET Index will reach 1,500 points by the end of Q4 2024, rising to 1,550 points in 2025. 

Investment strategies

Visakorn Kirivan, CFA, an Investment Strategist of Wealth Products & Strategy department at InnovestX Securities, suggested a diversification strategy. 

"The investment strategy involves reducing holdings in large-cap US and Thai stocks while diversifying into US small-cap value stocks, increasing bond allocation in anticipation of expected rate cuts, and designating a portion of assets to short-term cash to seize future opportunities," he said. 

He expects global equity markets to remain volatile in the first half of Q4, but to recover after the US election.

"InnovestX maintains the view of a soft landing, as reflected by the slowdown in US inflation and employment, while US GDP growth remains above its long-term average of 1.8%. We recommend that investors reduce their holdings in large-cap US  stocks and Thai equities, which have risen on short-term political news, and diversify into US small-cap value stocks to prepare for the upcoming rate cuts and elections," he said. 

Meanwhile, with the Fed and bond yields on the decline, Visakorn recommends allocating a portion of the portfolio to gold while remaining cautious and selective, focusing on value stocks with strong fundamentals and a stable business model. 

Overall, InnovestX emphasises the importance of a cautious and well-diversified investment strategy as global markets navigate this transition period in order to mitigate potential volatility and capitalise on emerging opportunities.