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Private Bad Debt and Public Debt Threat to Bond Markets



Private Bad Debt and Public Debt Threat to Bond Markets

Global bond markets may plunge into a financial crisis if private bad debt and public debt mount, while global stock markets could fall sharply if the Federal Reserve (Fed) pulls back on its quantitative easing (QE) after the central bank signalled a tapering in its latest statement.

Investing in Thai real estate investment trust (REITs) may prove an alternative to these markets as it is more resilient to these external factors, Win Promphaet, chief investment officer at Principal Asset Management told the Bangkok Post in an interview.

Mr Win said the US and global stock markets have been bullish recently, mainly due to the Fed’s continued QE practices by purchasing bonds to add liquidity to the economy and financial system. But if the Fed slows or stops QE, it could cause the stock market to panic.

The global economy also risks a debt crisis due to so many countries borrowing money to stimulate their economies or doing QE by lowering interest rates to help businesses. The debt crisis might just be postponed but it will finally happen.

This issue could be faced by many European countries, so it is important to monitor this risk and its impact on the global bond market, he said.

Mr Win said the domestic interest rate is expected to stabilize at the meeting of the Monetary Policy Committee (MPC) tomorrow. He expects the interest rate will not change this round but still could in the near future if SMEs do not begin to recover.

Avoiding long-term bonds

However, positive economic factors this year include the availability of Covid-19 vaccines, which will gradually affect economic recovery. But it will take longer for the rollout to affect the tourism industry, and it may take as long as six years for Thailand to return to its 40 million per year tourism numbers before the covid-19 pandemic.

China rising is another positive factor, with expected GDP growth of over 8% this year that will affect other Asian countries’ recoveries due to economic connectivity.

In addition, the commercial atmosphere of investment and trade between China and the US will improve under new US president Joe Biden.

Mr Win recommends investing in Thai REITs in the first half, an asset that has a good yield of 3-5% per year and will be less affected by external factors. Businesses are expected to recover and be attractive in the first half, namely energy, petrochemical, industrial estates and hospitals.

He also recommends avoiding long-term bonds due to the risk of interest rate cuts but recommends corporate bonds with high investment grades, and reducing investment weight in gold.

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