In a significant shift in global economic policy, three major economies -- the United States, China and Thailand -- have taken various easing measures to support their economic growth and stability.
First, the Federal Reserve has taken decisive action. The US central bank cut interest rates by 50 basis points to a range of 4.75% to 5.00%, amid signs of continued economic strength. Economic data for September showed remarkable resilience, with non-farm payroll growth exceeding expectations, while unemployment dropped to 4.1%. Inflation has reached a three-year low at 2.4%.
Nevertheless, some caution is in order. The Fed's latest Beige Book report paints a picture of an economy showing signs of a "soft landing", with most activities remaining stable amid modest increases in employment and prices, coupled with slowing wage growth.
But the report also highlights a significant trend of consumers "trading down" to cheaper alternatives across multiple regions. This shift in purchasing behaviour reflects growing price sensitivity among American shoppers, who are increasingly reluctant to pay full price for non-essential items.
Different metropolitan areas are also experiencing varied economic conditions. In New York, the restaurant businesses shows signs of decline while Broadway theatres have seen a recovery. In Philadelphia, credit demand is slowing as borrowers anticipate further rate cuts. In Chicago and San Francisco, consumers are actively seeking discounts and lower-priced alternatives. In Dallas, requests for assistance are increasing from elderly residents due to inflation pressures, with some forced to return to work.
The report indicates a notable slowdown in credit applications, as prospective borrowers await lower interest rates. This trend suggests pressure for faster rate cuts by the Fed.
However, we caution that if former president Donald Trump wins the upcoming election and imposes his proposed tariff increases on imports, it could trigger renewed inflation pressures. This scenario might constrain the Fed's ability to cut rates as expected.
DELICATE BALANCE
The overall report suggests a delicate economic balance, with consumers showing increased caution in spending and investment decisions. This cautious behaviour may influence the Fed to consider continued easing in the future, though political and inflation risks remain significant factors in the decision-making process.
The current economic indicators align with our soft-landing scenario. But we must remain vigilant about potential inflation risks and political uncertainties that could affect the monetary policy trajectory.
Second, China has unleashed a comprehensive stimulus package. An extensive series of monetary and fiscal measures have been announced to combat the economic slowdown. The monetary initiatives include reductions in seven-day reverse repo rates, medium-term lending facility rates, and long-term interest rates, alongside cuts to the reserve requirement ratio for commercial banks.
A notable 800-billion-yuan stock market stabilisation fund has also been established, complemented by property sector stimulus measures.
The fiscal policy response has been equally robust, featuring accelerated government investment, special infrastructure bonds and support for local government financing. These measures come as China's GDP growth reached 4.6% year-on-year, bringing the nine-month figure to 4.8%, at the lower end of annual targets.
While September data showed improvements in retail sales, electrical appliance and automotive sales, significant challenges persist. These include weakening exports, deflationary pressures and an unstable real estate market, in which new home prices have declined for 16 consecutive months.
POTENTIAL RISKS
While Beijing's recent stimulus measures demonstrate the government's commitment to economic recovery, we highlight several significant concerns about their effectiveness and potential risks. Our first concern is local governments, which serve as crucial policy implementation vehicles but are grappling with overwhelming debt burdens. This financial strain could significantly hamper their ability to execute new initiatives effectively.
Our second concern is the property sector, with many cities still facing substantial oversupply issues that complicate recovery efforts. Lastly, commercial banks may face increased risks as they become primary instruments for economic support measures.
However, September's improved data, particularly the consumption and production metrics, could indicate early signs of recovery. These may partly reflect the impact of previous stimulus measures. Hence, we need to closely monitor China's economic trajectory to evaluate whether the stimulus measures will yield positive results.
Third, Thailand has joined the easing trend. The Bank of Thailand has reduced its policy rate from 2.50% to 2.25%, responding to tight financial conditions and concerns over credit contraction. August economic indicators showed a broad slowdown, affecting tourism, industrial production and private investment, though agricultural exports showed some improvement.
September's inflation rate came in below expectations at 0.6%, while the Producer Price Index (PPI) contracted. The INVX Financial Condition Index has reached its tightest level in 16 years, influenced by a strong baht and record-high lending rates.
As for investment implications, we recommend four key investment strategies:
- Companies with strong fundamentals and consistent profit growth. We recommend BEM, BCH, BDMS, GULF, TRUE, AU and TNP.
- Stocks that benefit from declining interest rates: LHHOTEL, DIF, CPALL, AP, SIRI, SPALI, TISCO, KKP, GPSC and BAM.
- High-dividend stocks and Government Pension Fund targets: KTB, BBL, ADVANC, HMPRO and BCP.
- Oil-related stocks as geopolitical risk hedges: PTTEP.
Dr Piyasak Manason is head of the investment strategy department at InnovestX Securities Co Ltd, a subsidiary of SCBX group
