The US Federal Reserve is likely to lift interest rates by just 0.75% this year amid improving economic figures, benefiting Asian stock markets as well as high-risk assets, investment company Principal Asset Management said yesterday.
The comment was made before the first 2023 meeting of the US central bank's Federal Open Market Committee today and tomorrow, when it is poised to raise interest rates by 0.25% from the current range of 4.25-4.5%. The increase marks another slowdown from the 0.50% rate increase the Fed announced in December, which itself was a step down from the 0.75% pace of rate hikes seen during the previous four meetings.
"2023 is the year of the Fed's change in rate policy as the agency is likely to hike the rate by only 0.75% for this entire year," said Principal's chief investment officer Supakorn Tulyathan. "As the Fed stops increasing the rate and the US dollar depreciates, emerging stock markets in Asia will get a boost as pressure from rising US interest rates on the financial results of Asian stocks will be eased."
At the same time, China's reopening will benefit the Chinese stock markets, causing them to rebound significantly. Based on a forecast by the International Monetary Fund, this year's GDP growth rate of Asia and China is projected to be 4.87% and 4.4%, respectively, surpassing growth in other markets and beating the global economy's forecast of 2.66%, Mr Supakorn added.
Over the past 12 months, the Thai stock market has attracted US$6 billion worth of fund flows, thanks to China's easing of its zero-Covid policy. Thailand's export outlook is not good for the first half of 2023, but that could be partially offset by government budget disbursements, Mr Supakorn said.
Principal, however, expects the Thai stock market to move sideways this year. Although the market will benefit from the tourism sector in the first half of the year, there are still risks from the export sector, as the US economy and threat of recession in Europe will shrink demand in the global market.
Punyanoot Punyaratabandhu, Principal's equities investment fund manager, said retail stocks in Thailand and Vietnam will see significant growth this year due to increasing spending in the retail sector following China's recent border reopening.
"Thailand is one of the few countries whose GDP growth in 2023 will improve from the previous year. Profits in Thai retail stocks are therefore expected to soar higher than the pre-pandemic level this year," said Ms Punyanoot.
A Thai general election in May 2023 will also boost growth in retail stocks, she added.
