Fund managers urge flexibility as market panics

The political uncertainty is the biggest concern for all participants in the capital market. Whether it ends with more violence or a peaceful solution, the SET Index will be affected.

Fund managers see an opportunity in this time of uncertainty as stock investment would still be able to provide a relatively better return than other investment tools. Investors have to get ready and be flexible enough to adjust themselves to buy stocks during times of market panic.

Vana Bulbon, CEO of UOB Asset Management, suggested investors assess the situation by considering both short and longterm scenarios.

While the shortterm impact from the current situation needs a particular strategy, some longterm problems lead to holding cash. Therefore, investors should have some cash to gradually buy cheap stocks.

Foreign investors have continued selling equities worldwide, including on the Thai market, while local institutional investors have gradually bought up stocks that fell below their fundamental level.

Vana believes the current local political tension is a shortterm problem. He said all political crises had an impact for a short period before they ended, though investors must keep monitoring any situation closely.

Since 1988, Thailand has held seven general elections. Looking at the relationship between elections and movements in the SET Index, over the three months before an election day the SET rose by an average 12.55 per cent. The highest jump, of 22.17 per cent, was recorded during the period before the election of March 22, 1992, which was the election after the bloodshed of May 1991.

In 1996, before the 1997 financial crisis, the SET plummeted to a historic low of 207.31 from its peak of 1,753.73 in 1992. The Thai economy took two years to recover, along with the rise of the SET index until today.

The SET Index fell slightly to 692.57 from 702.56 on September 19, 2006 when a bloodless coup ousted the Thaksin Shinawatra government. Since the situation settled, the SET has continually rebounded.

On December 19, 2006, the Bank of Thailand announced capital controls with a 30percent withholding reserve. The SET fell sharply, by 118 points to 622.14, but bounced back to 691.55 the next day.

Vana said that generally his equity fund would invest in stocks more than the normal minimum standard of 65 per cent, keeping cash as only 15 per cent of the portfolio. However, cash holdings would be increased to 20 to 25 per cent of the portfolio in the worstcase scenario.

In seven of the past 10 years, investing in equities has beaten inflation. Though investing in bonds and bank deposits may be safe, their returns are much lower than inflation. Therefore, no matter what crisis arises, Vana suggests investors keep investing in stocks.

"Investors need to be mindful as they assess the situation. It's the best time to adjust your investment portfolio to a better proportion. Now you have to diversify your portfolio into stocks, fixed income and cash. You may put some money into commodities. Mutualfund holders may invest in more unit trusts," he said.

Teera Phutrakul, executive chairman of Finansa Asset Management, agreed that whether the market sentiment is bullish or bearish, investors should set their strategy based on the time frame of investment, the desired return and the acceptable risk. This finally leads to suitable and efficient asset allocation.

According to statistics, assetallocation factors affect as much as 95 per cent of returns, but investors need to keep in mind that they must have good fundamental stocks in their portfolio. Longterm investors do not need to worry about shortterm situations. "All incidents will finally end," Teera said.

Monthol Junchaya, fund manager of Thanachart Fund Management, said that over the past 10 years, he could see opportunities in all crises that had created good returns. Each situation reflected the strengths and weaknesses of companies. Thus, investors can take opportunities to shop for good stocks in all crises, as stock prices respond the fastest once a situation settles.

However, inflation is major factor that has investors concerned. In July, inflation rose to 9.2 per cent, which brought the average rate over the first seven months to 6.6 per cent.

Monthol still believes that longterm stock investment is the first choice for investors to beat inflation.