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13 Nov 2019

Financial Institutions

Slowing economy and low returns prompt more people to search for yield (Current Issue No.3054)


         As the Thai economy has shown signs of slowing, the Monetary Policy Committee (MPC) has decided to cut the policy rate for the second time this year to 1.25 percent per annum during its meeting on November 6, 2019. The central bank's policy rate cut has been passed on to the interest rate reduction of commercial banks and other financial markets, leading to a low interest rate environment; this may trigger more the search-for-yield and riskier investment behavior than usual. KResearch has summed up signs of recent changes in investment patterns of investors, who hunt for higher investment returns. For example, debenture holdings by individual investors have risen to exceed 1 trillion Baht, while the number of mutual funds bearing higher risks than bond mutual funds has increased, and the savings amount deposited by savings cooperatives members continues to grow steadily.

       ​ KResearch views that search-for-yield investment pattern is one of the challenges to financial stability that the Bank of Thailand and other financial regulatory bodies have recognized the importance of the situation and have monitored it to assess the signs of risks in various aspects, including savings/ investment channels in the systems supervised by the regulatory agencies and other types of investment outside the supervision of the regulatory agencies such as pyramid schemes and forex exchange investment  as well as the trading of unscrupulous digital currencies that have not been approved by the authorities. The effort is to curb risks that may negatively impact household finances and the overall Thai financial system.

            Looking ahead, the limited growth of the Thai economy may continue lowering the returns from savings and investment in low-risk assets, and it may prompt savers/investors to adopt the search-for-yield behavior to offset such lower returns or increase their investment yields. Therefore, it is essential to develop immunity and provide financial literacy in the general public. Investment risks may arise from macroeconomic factors and specific risks that happen with certain assets. Investors should be aware of these risks and know their risk limits while having good knowledge and understanding of financial issues. They should also gain enough and appropriate information about returns and potential risks from investment.

Financial Institutions