THE outlook is picking up for both Thai equities and the Philippine peso, even in spite of risks such as the more subdued growth outlook in the region, said DBS strategists Joanne Goh and Eugene Leow on Wednesday (Dec 12).
Thailand’s general election, scheduled for February 2019, as well as the Bangko Sentral ng Pilipinas’ decision to tighten monetary policy, were both welcome moves for the analysts.
They expect a smooth handover of power in Thailand next year, which “should be a positive for domestic consumption and investment, both of which have been recovering steadily”.
Amid external-oriented risks such as a sell-off by foreign investors and a sharp fall in critical Chinese visitor numbers, the house suggested stock picks that tap domestic demand or could benefit from trade diversion in the US-China trade war.
“We also recommend core holdings in stocks with strong long-term outlook and those with high yield and low risks,” they added.
As for the peso, the analysts noted that interest rates have stabilised in the past two months as the Philippine central bank delivered rate hikes that were seen by watchers as overdue.
“While the real policy rate is still negative, they are no longer deep in negative territory. Moreover, there are signs that inflation may have peaked. Lower oil prices would also help,” the DBS analysts wrote. “Government bond yields have also adjusted sufficiently.”
On the two-year and 10-year government bond spreads, they said that “we see little value in taking duration risks” and expressed a preference for the two-year option, “given the relative steepness of the three-month/two-year segment”.