Bangkok--21 Dec--Master Mind Communications
Global economic growth is forecast to be significantly lower in 2011 with a widening divergence in the performance of emerging versus developed economies, high volatility in markets, and rising uncertainty over macroeconomic issues, ING Investment Management said at its Annual Outlook Conference held in London on Wednesday.
It warned that untested policy prescriptions from governments and central banks — which it has termed ‘test tube policies’ — could further contribute to significant market volatility. ING IM also said that much of the ‘developed’ world has made only 30% — 40% of the adjustments needed to adapt to the new environment and challenges, and estimates there is a 60% chance that global economies and markets will ‘muddle’ through 2011.
Valentijn van Nieuwenhuijzen, Head of Strategy, Strategy and Tactical Asset Allocation Group, said: “We are likely to face a tough and volatile economic and investment environment next year with the divergence between the emerging and developed economies widening further. Companies and investors will also need to brace themselves for unexpected consequences from the ‘test-tube’ macroeconomic strategies being employed by governments and central banks.”
ING Investment Managmenet expects real global GDP growth to be around 3.8% in 2011, compared with its forecast of 4.8% for 2010. The expansion in GDP is projected at 6.5% next year (2010: 8.1%) in the emerging economies and at 1.6% (2010: 2.2%) in the developed world, widening the economic performance gap between the two further.
These forecasts could be further modified by the possibility — put at 25% — that the world could lurch into another serious downturn, compared with a 15% chance of a surprise on the upside with strong economic growth. Developed economies may continue to be dominated by deleveraging and output gaps that would lead to deflation and low nominal growth.
ING IM Global Economic Outlook
Real GDP Inflation Policy Rates (%, YE)
2010 2011 2010 2011 2010 2011
World 4.8 3.8 2.9 2.7
Developed 2.2 1.6 1.2 1.0 0.45 0.53
US 2.6 1.8 1.5 0.9 0.13 0.13
Euro 1.5 1.7 1.3 1.6 1.0 1.25
Japan 2.9 1.1 -1.0 -0.6 0.10 0.10
UK 1.4 1.5 3.1 2.5 0.50 0.50
Emerging 8.1 6.5 5.1 4.9
China 10.1 8.5 2.8 3.6
Fixed income
ING Investment Management believes that bond yields will remain low and risk premiums attractive. The treasury markets will remain supported by low central bank rates, quantitative easing and disinflation. Valentijn van Nieuwenhuijzen said: “Fixed income investors need to search harder for yield and this will mean a growing focus on emerging market debt, which is becoming increasingly more attractive. However, liquidity will be a key factor for investors next year, and so this asset class may also suffer in this area.”
Equity
ING Investment Management believes that the key drivers for the equity markets in 2011 will be positive earnings growth, attractive valuations, abundant liquidity and strong corporate wealth. These will underpin three strong themes for next year — sustainable income and growth, increased corporate spending, and emerging markets.
ING Investment Management — Index Targets
Index Current End 2010 End 2011
EuropeStoxx 600 267.0 280.0 310.0
US S&P 500 1185.0 1190.0 1300.0
JapanTopix 817.0 860.0 950.0
MSCI EM Free 1115.0 1175.0 1350.0
This is reflected in the growth it expects to see in some of the major global indices:
Sustainable income and growth: Here, dividends will become an even more important income generator, whilst low payout ratios, strong balance sheets and high profitability will support further growth.
Corporate spending: Corporate confidence is rising, and strong cash flows and balance sheets will lead to increased activity in buybacks, dividends, M&A activity and Capex.
Emerging markets: There are still many attractions here for investors, including low public and private debt levels and high economic growth. ING IM still believes that emerging market equity valuations are not in ‘bubble’ territory as some market commentators claim.
Patrick Moonen, Senior Equity Strategist, Strategy and Tactical Asset Allocation Group, said: “The 2011 outlook for equities is good and we expect returns to be in line with earnings growth. However, investors will need to focus on yield and also growth markets, whilst any increase in corporate spending will be the icing on the cake.”
Thai Economic Outlook: 2011
The Thai economy is set to expand 7.0-8.0 percent this year and likely to continue growing by 3.0-5.0 percent next year, despite showing a deceleration from the previous year. Factors supporting the growth of the Thai economy in 2011 come from all economic sectors, in term of government and private investment and private consumption while export is the key economic driver in this year. However, the export will remain growing but at a decelerated pace from the previous year, partly because of the strength of the baht.
Meanwhile, key risk factors to the economic growth next year include political uncertainties, which threaten the continuity of government budget disbursement and adversely affect investor confidence. Global soft landing in the United States and Europe is another key concern even if various government measures are adopted. Given sluggish economic recovery and lingering effects of the global financial crisis, unemployment across advanced economies is forecast to remain high and US housing prices still decline. While the major economies of Europe, Japan and the US continue to pursue various fiscal policies as well as monetary policies such as interest rate cut to the lowest and asset buying program. Some believe that principal cause led from improper implementing lending mechanism.
Thai Fixed Income Market
Mr. Jaruwat Preepreamkul, Head of Fixed Income, INGFT, agrees that Thai economic growth in 2011 is expected to fall to 3.0-4.0%, compared to 7.0-8.0% in 2011. Stable rate of inflation is estimated from 2.5% to 3.5% and the Bank of Thailand (BoT) will continue raising interest rates sporadically by 0.5-1.0% in 2011 to curb inflation to keep them back to normal level. As a result, government bond yields and deposit rates should keep rising. We expect the shape of yield curve would become more flat and favor the short- and medium-term bond yields as bond demand would exceed new supply.
Fixed income investment strategy in 2011 remains unchanged. We would focus investing in short term fixed income instruments and bank deposit to avoid the volatility from the interest rate hike and increase investment portion in medium- and long-term fixed income instruments to earn return once interest rate is rising.
Source: ING Investment Management and ING Funds (Thailand) Co.,Ltd.
Thai Equity Market
Ms. Siripun Sutharoj, Head of Equities, INGFT, believes that Thailand stock market will continue to grow next year and offers reasons to prove to the opportunities that Thailand stock market can bring.
International factors
Positive factors
- More liquidity programs provided by central banks, notably the FED, ECB and Bank of England (BoE) with the fear of double dip and the tight budget deficit limit.
- USD weakening from the result of central bank’s liquidity pumping.
- Commodity prices especially crude price forecast to rise and to reach at a level of USD 90-100 per barrel in anticipation of weaken USD and global demand and ample global demand.
Negative factors
- Capital inflows move to the laggards, the US or Europe, if there is a signal of recovery.
- Change in US monetary policy after QE 2 expiration would be bullish for USD
Domestic factors
Positive factors
- Satisfactory level of economic growth.
- Company earnings continue to improve.
- High level of consumer and private confidence and domestic investment. Confidence index among Thai consumers in September hitting the highest level in 30 months.
- QE 2 expected to boost Thai equity market. Political stability, potential economic growth and the appreciation trend of Thai baht are key driving factors for foreign investors to consider and overweight/maintain the position in Thai equity market.
Negative factors
- Worries in capital control in case of rapid pace of Thai Baht appreciation which much stronger than other regional currencies political difficulties and the upcoming general election in year 2011
At present the SET Index continued to increase 40% rise over the beginning of 2010. ING FT expects to see volatility from periodic profit taking in the short run as the index has risen from the lowest point after the financial crisis in 2008 whilst the Index is anticipated to move upward in the long run.
Listed companies’ earning is set to continue in 2011. Earnings per share (EPS) is projected to appreciate 15% next year and our target of SET Index P/E is 12x which closed to regional average P/E 12.7x and average P/E of SET Index over last 10 years. However, market P/E is forecasted to be above the average if an economy is at the growing stage.
Our sector picks for long term investment are government spending related sectors such as contractor sector, sector which benefits from economic recovery is banking sector. Moreover, petrochemical sector and energy sector, a key sector driving SET Index, will enjoy the further rising of commodity price resulting from QE 2 measures.
Contact:
Ms.Pornpun Paiboonwattanachai
Senior Vice President, Sales & Distribution Department
ING Funds (Thailand) Co.,Ltd.
T- 0-2688-7785 F- 0-2688-7707 E-
[email protected]
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