Thailand
Thailand: Portfolio diversification in a pandemic
Stock markets around the world experienced the biggest falls in history earlier this year because of the Covid-19 pandemic. Though they have since recovered from their March lows, many economies have gone into recession.
The spread of the coronavirus around the world has driven many structural and lifestyle changes, such as the growth in e-commerce and increasing shift towards online consumption. Amid lockdowns and disruptions to brick-and-mortar businesses, the significant impact on global and local economies has been far reaching, especially for countries where the situation is not yet fully under control.
To cushion the economic fallout, governments and central banks have taken a range of proactive fiscal and monetary measures, including spending a large portion of their budgets on relief efforts and reducing interest rates to almost zero.
The key question here is: “Are we heading into the next global depression?”
Global GDP is expected to contract by 4.9% in 2020. By the end of the year, unemployment rates in many countries are expected to be at their highest levels since the Great Depression, according to the OECD.
In Asia, the path to recovery may look uncertain but some experts are saying the worst is over, with China expected to play a vital role leading the region-wide rebound. Regional GDP growth in the second half may reach the lowest rate since 1967, but a gradual recovery can be expected unless there is another large-scale lockdown. Effective containment of the infection rate and successful vaccine development are the keys to a recovery.
RISING TRENDS
Life as we know it has changed in the wake of the pandemic, shifting our lifestyles to a new normal. Digitisation has also accelerated as a result of physical distancing measures. UOB’s recent research on consumer sentiment shows Thais are now more willing to go cashless.
However, they also hope for more incentives and options, including the availability of more merchants and better security for digital payment methods.
We are also seeing changing consumer behaviours, such as the increasing preference for online shopping. According to UOB credit card data for Thailand, the volume of our customers’ online purchases from March to May 2020 rose more than 85% compared with the same period a year before. We believe the share of online transactions in customers’ overall spending will continue to increase.
Many workplaces have also turned to remote working and video conferencing, and this trend is expected to become more prevalent, driving demand for more and better digital solutions.
Down the road, the nature of globalisation will change. Manufacturers are now jostling to shift the structure of their supply chains to make up for the drop in sales and missed deliveries in the last few months. Their plans include moving in-house the production of certain upstream components that were previously purchased from suppliers, or even redesigning entire production systems to include more and different products in case of future disruptions.
DOWNWARD TRENDS
Even as trends resulting from the pandemic have led to opportunities in e-commerce and logistics, there have also been challenges because of the fallout from Covid-19.
First, the circular economy, which is based on the principles of reducing waste and pollution by recycling or upcycling products and materials, has been disrupted over fears associated with reused materials.
Second, renewable energy projects in developing countries are expected to be delayed as oil prices are decreasing.
Third, transport mega-projects are expected to be delayed as the economic momentum remains weak and the public sector is likely to pour considerable funds into stimulating the economy, with no funds available for other investments.
Last but not least, the sharing economy and peer-to-peer business models may also experience an adverse impact because of social distancing measures.
What should investors consider now? While financial markets have recovered quickly with support from high liquidity, investors should remain cautious given potential risks such as a second wave of Covid-19 infections, geopolitical instability arising from the US presidential election, and nervous trade relations between Washington and Beijing. We expect continued market volatility in the near term.
It is imperative to protect investment portfolios from the impact of a bear market downturn through diversification into bonds and quality stocks of companies with strong balance sheets.
In particular, we are positive on companies related to innovation, artificial intelligence and healthcare as they provide long-term growth potential. Covid-19 has raised the importance of medical research and healthcare services, with governments supporting these sectors.
Investors able to take on higher risk over the long term can consider building a growth portfolio that includes innovative companies tapping digitisation to transform their business models or drive productivity.
The key is to invest according to risk appetite. We recommend investors gain a good understanding of potential risk factors and consider such risks ahead of any potential returns.
Source: https://www.bangkokpost.com/business/2005011/portfolio-diversification-in-a-pandemic