Rising inflation in both the US and Thailand is prompting investors to rethink portfolio allocation, as analysts increasingly believe the global interest rate easing cycle has come to an end.
Therdsak Thaveeteeratham, executive vice-president of Asia Plus Securities, said inflationary pressure driven by rising production costs, or cost-push inflation, is expected to intensify through the end of the year, limiting the ability of central banks to cut rates.
Thailand's inflation could accelerate to 4% by October, in line with rising producer prices, while policymakers are expected to keep the benchmark interest rate unchanged at 1% to balance weak economic growth against inflation risks, he said.
Raising interest rates would place additional pressure on the fragile Thai economy, while further cuts could reignite inflation, said Mr Therdsak. As a result, both the Bank of Thailand and the Federal Reserve are likely to maintain a cautious policy stance for the remainder of the year.
BANKS AND DIVIDEND STOCKS
With rates expected to remain elevated for longer, he recommends shifting portfolios towards banking stocks and high-dividend equities, which are viewed as more resilient than fixed-income assets in an inflationary environment.
Thai banks are among the key beneficiaries of the end of rate cuts because stable interest rates allow lenders to preserve net interest margins, while several major banks continue to offer dividend yields of around 6%.
"In an environment where inflation is running above deposit and bond yields, investors are searching for stable returns," said Mr Therdsak. "High-dividend stocks are becoming a safer alternative to high-yield bonds."
He noted Thailand's broader equity market remains fundamentally sound despite volatility caused by Delta Electronics (Thailand) (DELTA), whose share price movements heavily influence the Stock Exchange of Thailand. Excluding DELTA, market valuations remain reasonable, and first-quarter corporate earnings largely exceeded expectations.
Selective opportunities are emerging in the retail sector, particularly among companies expected to benefit from government stimulus measures and stronger consumer spending. Stocks linked to higher purchasing power, including COM7, continue to attract investor interest.
Mr Therdsak advised investors to reduce exposure to high-yield bonds due to growing economic uncertainty.
"Investment-grade bonds are still seen as appropriate for capital preservation and liquidity management, although their return potential may remain limited if interest rates stay flat," he said.
ALTERNATIVE ASSETS
Gold continues to play an important role as an alternative investment and inflation hedge, although analysts cautioned that gains may be more gradual compared with earlier rallies.
Gold prices remain closely tied to inflation expectations and US monetary policy, said Kritcharat Hirunyasiri, chairman of MTS Gold.
If US inflation rises to 4.5-5%, the Fed could be forced to resume rate hikes, creating significant downward pressure on gold prices, he noted.
"Inflation is not positive for gold. If inflation rises but rates remain unchanged, gold will move higher. But if inflation forces the Fed to raise rates, gold could face sharp corrections," said Mr Kritcharat.
Still, gold retains long-term support from global central banks, many of which are gradually reducing holdings of US Treasuries and increasing allocations for gold reserves, he said. Gold prices remain in a "sideways upward" technical trend, with momentum likely to continue if prices remain above key support levels, said Mr Kritcharat.
Analysts recommend investors maintain balanced portfolios focused on high-dividend equities, selective bank stocks, investment-grade bonds and gold as they navigate this environment.
