FED Tapering Later This Year Signals Buying in Dip Opportunity

Kasikorn Securities (KS) analysis showed performance of major asset classes one month after FED tapering in 2013 and found prices dropped sharply across multi assets. They found global equities fell by 7% while emerging markets experienced a drop of 9%. Safe haven assets such as US 10-year bond yield experienced a jump of 50 bps and gold dropped by 7% while oil by 1.7%. However, six months after tapering asset classes began to recover. Developed market equities outperformed emerging equities with MSCI Developed Markets Index increased by 11% during May 22 and Dec 31, 2013. Conversely, MSCI Emerging Markets Index fell 2.3%. TIP markets referred to Thailand, Indonesia and Philippines saw a drop of 16% on average six months after FED signaled tapering.

However, the KS analyst Sunthorn Thongthip does not expect the SET to react sharply this year as in 2013 since investors have already priced in the FED tapering. Additionally, according to his analysis foreigners currently hold roughly 28% of the index compared to 37% before the tapering in 2013. This would limit significant fund outflow from the market thus less pressuring the index.

Sunthorn expects the SET to drop when the FED signals tapering on August 26-27 in Jackson Hole Meeting or during the September 21-22 FOMC meeting. He sees a buying opportunity in dip with expectation of the market to rebound back later in the year.

According to KS forecast 12-month forward SET index should stand at 1610 with the assumption of expected lower number of new cases in September leading to gradual reopening of the economy.