'Diversify your assets to the West, the party there is now starting." This remark epitomises the yield-hungry investors who once shunned ploughing money into the US market but are now jumping on the bandwagon to cash in on the recovery of the world's biggest economy.
Even though Wall Street stocks recently hit an all-time high, global investors are increasingly betting that US stocks will head further north, with most companies sitting on huge stockpiles of cash as they wait for the economy to turn.
The legendary investor Warren Buffett is in this camp. While US stocks are not as cheap as they were a few years ago, he thinks they are now "reasonably priced" and not "ridiculously" high.
Mr Buffett also prefers stocks to bonds, which he calls a terrible investment right now, as they are priced artificially high after the US Federal Reserve's unprecedented asset-buying scheme. People could lose money when rock-bottom interest rates finally start to rise.
Federal Reserve chairman Ben Bernanke's remark that the Fed could taper its US$85 billion in monthly asset purchases later this year and halt them altogether in mid-2014 has underscored the nascent recovery and reinforced expectations of fund repatriation to US markets.
The recent fluctuations in Thai markets make it all the more compelling for local investors to consider stepping off their own turf to mitigate risk and seek higher returns. But since any outbound investment can entail currency risks, investors should consider a foreign fund's hedging policy.
Chongrak Rattanapian, the executive chairman of Kasikorn Asset Management (K-Asset), says US stocks are a potential growth area in the second half of 2013 and for the next few years.
"Since the Fed's signals that the US will scale down injecting money into the system, Standard & Poor's outlook upgrade from negative to stable and the US dollar's appreciation, funds are flowing out around the world and returning to the US," he said.
The Dow Jones Industrial Average and S&P 500 have risen by 13-15% year-to-date, while Thai shares and those of regional peers are reeling after a 10-15% fall in the past few weeks.
The US stock market's rise is still in an early stage, says Mr Chongrak.
Japan's Nikkei has also performed well this year, with a 40-50% gain in the first five months. Despite a recent pullback of 20%, the index remains a top gainer when set against Asean and US gauges.
Mr Chongrak advises investors with a time horizon of 1-3 years to allocate 65-70% of their portfolio to stocks. Investors wanting exposure to foreign markets should keep a close watch on global developments.
K-Asset has two US funds, whose returns are well above those of funds invested in the Thai stock market.
The K-USA Equity Fund, which invests in the Morgan Stanley US Advantage Fund of listed firms with strong fundamentals and growth prospects, posted a return of 11.8% for the year to June 17.
K-USXNDQ, investing in the Nasdaq stock market, is an index fund of 100 mostly IT companies and had a return of 5.4% from its inception in April to June 17.
K-Asset funds investing in Thai stocks _ K-Star, K-Value and K-Equity _ had returns of 12.1%, 7.7% and 9.4%, respectively, as the Stock Exchange of Thailand (SET) index rose by 5.3% for the year to June 17.
"Japanese stocks are also interesting as the Japanese government continues its economic stimulus package that is positive to stock investment," said Mr Chongrak.
He said investors are underweighting global fixed income due to lower returns than local bonds.
Thai government bonds with a one-year maturity offer a 2.5% return, while foreign bonds in the Middle East and South America provide a one-year return between 2.8% and 3.2%.
Saratch Chatsuwan, a senior vice-president of Tisco Asset Management, said the US stock market is the best investment choice as that country starts its recovery.
Tisco forecasts the Dow Jones index to surge to 17,000 points over the next 12 months from about 15,000 now, an upside of 13.3%.
Tisco has introduced two trigger funds to invest in US stocks _ the Tisco US Equity Trigger 8% Fund 1 and the Tisco US Equity Trigger 8% Fund 2. Both set the same target return of 8% within eight months of their respective launches in April and June. The funds have the Dow Jones as their benchmark.
Mr Saratch recommends investors allocate 60% of assets to stocks and debt instruments for a one-year period and avoid gold. For the stock portfolio, 35% should be in Thai shares and 25% in global issues.
"The Thai stock market is appealing for its low price-to-equity ratio, so when the SET index slips below 1,500 points, local funds will set up SET index trigger funds, as the market will be trading below fair value," he said.
Investors should diversify into US, Thai and Chinese stocks, with anticipated growth in the second half of this year, said Mr Saratch.
For its part, Krungsri Asset Management launched the Europe Equity Fund last month on signs of a looming recovery on that continent.
About the author
- Writer: Nuntawun Polkuamdee
Position: Business Reporter