The coronavirus pandemic has hit Thailand’s economy, especially the tourism sector. But there is light at the end of the tunnel, according to Krungsri Asset Management, winner of the Asia Asset Management (AAM) 2021 Best of the Best country awards for Best Bond Manager and Fund Launch of the Year (Thailand). AAM spoke to Krungsri Asset Management about their thoughts on the future of the country’s economy and their strategy moving forward.
How would you describe the current macroeconomic picture in Thailand and the impact of the Covid-19 pandemic?
Economic data suggests that the Thai economy remains on track for recovery. The manufacturing sector continues to rebound on the back of improving external demand, resulting in strong export recovery. A series of government pandemic relief measures are helping to support consumption. The arrival of the vaccine in February to the country has also helped restore confidence and optimism.
For bond investors, what is the firm’s current strategy?
We adopt an active management style, with a duration and yield curve strategy applied to all short-, medium- and long-term fixed income. We also apply a credit strategy to all fund categories in line with investment restrictions and guidelines. This also applies to derivatives where we currently exploit a cross currency swap (CCS) strategy for hedging purposes only.
Currently, we hold a neutral view on the local fixed income market with a slight bearish bias. We believe there will be an opportunity for medium- to long-term trading in the near future.
There have been some issues on bond liquidity in Thailand recently and mutual funds have also been affected. Could you comment on this?
Concerns over Covid-19 sparked broad-based selloffs in March. The subsequent decline in mutual fund NAV was uncommon and prompted retail investors to indiscriminately sell their mutual fund holdings. The event led some mutual funds to close or place a limit on redemption in an effort to preserve liquidity and prolong the selling process in order to obtain more reasonable prices for their securities.
During this time, all relevant parties, including the Bank of Thailand, the SEC, banks, and asset managers, worked together to come up with various measures to calm the market. It took around 3-6 months for the liquidity concerns to subside and for credit spreads to return to reasonable levels.
Where are some of the opportunities in the medium-term for bond investors?
We think 2021 will be a year of economic recovery and an opportunity to invest in Thai medium- to long-term corporate bonds. The sector is expected to generate satisfactory returns for investors based on our view of strengthening credit profiles and room for credit spreads to compress further. In comparison, we have a bearish view on government bonds this year in light of concerns over the Fed’s tapering and rising government bond supply globally.
On your tactical asset allocation fund, how do you see prospects this year?
This year investment is based on the theme of economic recovery. We are overweight in equity investment and believe its returns will outperform fixed income this year, mainly supported by low interest rates, abundant liquidity, earning recovery and additional stimulus from global central banks.
We prefer emerging markets to developed markets equity as we assess that emerging markets will benefit from foreign fund inflow. In terms of market, we are overweight in China as it continues to report strong economic data and its government gradually relaxes regulation in order to allow more foreign investors to access its market. We are also overweight in the Thai equity market as we see the country’s economy gradually rebounding.
For fixed income, we believe that additional stimulus from major economies will lead to greater supply of bonds and push global bonds yield higher. Concerns about rising oil prices and US house prices, which will lead to higher inflation, should add more pressure to bond yields. The US central bank may need to act more aggressively to calm the markets.
Finally, for Thailand, how will the economy look like post-pandemic?
We are observing positive trends in the export sector as the global manufacturing purchasing managers’ index (PMI) exhibits strong growth, reflecting robust global demand. Private consumption should gradually rebound, helped by government’s pandemic relief measures. Public investment, including on-going megaprojects and new projects, should continue to support the overall economy.
The Bank of Thailand expects the Thai economy to expand by 3.2% in 2021, mainly dragged down by the tourism sector. However, we expect the Thai economy to expand by nearly 4% as we are more optimistic about export growth. In January 2021, exports excluding gold and oil-related products jumped 7.57% from the same period last year, with export values higher than the 5-year average following December’s 5.81% gain.