Entering a new era

As we enter the final quarter of 2024, we have arrived at a new perspective on the economy and investment outlook for the fourth quarter and into 2025, focusing on three main points:
New economic era: In the third quarter, the global economy experienced a synchronised recovery. However, in the fourth quarter, we will start to see a slowdown in developed economies, especially in the manufacturing sector (late cycle), which will cause the Asian economy to slow down in the next 3-6 months.
New interest rate era: Major central banks, such as those in Europe, the UK, Switzerland and Sweden, have started to cut interest rates. The US Federal Reserve recently made a move for the first time in four years, with a reduction of 50 basis points. It has signalled a further 50bps of cuts this year and possibly another 100bps next year.
New political era: The outcome of the US election will affect the global economy and politics. Kamala Harris stresses the public welfare with policies that are less business-friendly, especially her plans to raise corporate taxes. In contrast, Donald Trump supports businesses through corporate tax cuts, but would intensify trade wars.
Regardless of who becomes president, putting campaign policies into action will be challenging as a divided Congress is highly possible. In addition, the risk of a cold war with China remains, increasing global trade risks.
FED TO MOVE QUICKLY
Looking at the impact of monetary policy, we expect the Fed to make six rate cuts of 25bps by the end of the first half of 2025, and to slow to quarterly cuts in the second half.
Other central banks will cut rates at a slower pace, but in any case there will be financial volatility.
The US Treasury yield curve, which is normalising from an inverted one, reflects the market’s belief in rapid Fed rate cuts. This phenomenon leads to a so-called bull-steepening scenario, where short-term yields decrease faster than the long-term one. Historically this is not favourable for risky assets.
In terms of exchange rates, faster and more significant Fed rate cuts compared with those of other central banks will likely weaken the US dollar against currencies such as the yen and euro, as well as the baht, which will strengthen.
We foresee the US economy, despite exceeding growth expectations, slowing down in the future, with a soft landing scenario continuing into 2025.
The European economy, although improving, will grow more slowly, while China’s economy will slow significantly, with our GDP growth forecast adjusted from 5.0% to 4.8%.
The latest monetary stimulus indicates a stronger intention to boost the economy and capital markets in China.
The People’s Bank of China has cut key short-, medium- and long-term loan rates, as well as mortgage interest rates by 20-25bps. The regulator also cut the reserve requirement ratio for commercial banks by 50bps, freeing up 1 trillion yuan ($140 billion) for new lending.
An 800-billion-yuan fund is expected to inject capital into the Chinese stock market. Coupled with easing in fiscal policy, expected to be announced soon, these measures could significantly help the Chinese economy, which currently is entering a Japanese-style lost decade scenario.
THAI OUTLOOK IMPROVING
For the Thai economy, the first half of 2024 saw a significant slowdown because of tight domestic fiscal and monetary policies. The former led to lower capital budget disbursements because of the delayed budget process.
The latter led to contracting private investment and durable goods consumption amid strict lending standards. This caused a credit contraction throughout the first half.
However, the change at prime minister and the long-awaited unlocking of the digital wallet stimulus should allow the economy, which slowed in the second and third quarters, to recover in the fourth, with growth expected at 3.5% year-on-year, up from the previous forecast of 2.9%. We project 2.5% growth for the full year.
In 2025, the economy will benefit from monetary and fiscal measures, with investment disbursements growing by at least 10.5%. Policy interest rates could be cut by 100bps in 2024-25, but exports may slow, in line with the US and Chinese economies, leading to modest 3% growth next year.
In terms of investment strategy, we expect increased market volatility in the final quarter of 2024, benefiting from lower interest rates, which will boost emerging markets compared with developed markets.
The weaker dollar will attract capital inflows into emerging markets and Thailand, while initiatives such as the digital wallet, the Vayupak Fund, and 2025 budget disbursement will support investment to some extent.
These factors will benefit large domestically focused companies with strong financial positions, reducing the impact of external volatility and the fluctuation and appreciation of the baht. We recommend BDMS, CPALL, HANA and LHHOTEL as standout stocks in the fourth quarter, with a SET index target of 1,500 points in 2024 and 1,550 in 2025.
Dr Piyasak Manason is head of the investment strategy department at InnovestX Securities Co Ltd, a subsidiary of SCBX group.