Midterms primed to test asset allocation

The outcome of the US midterm elections adds a fresh layer of uncertainty to global financial markets, prompting investors to reassess their positions in equities, gold and cryptocurrencies amid shifting political dynamics, earnings risks and regulatory challenges, say investment executives.

Win Phromphaet, executive chairman of Kasikorn Asset Management (K-Asset), said market reactions would be difficult to predict, even when the election outcome was broadly anticipated.

With political power divided between the two parties, extreme policies could become harder to push through, potentially supporting greater policy stability. Markets generally favour a balance of power that limits policy extremes, he said.

For US equities, Mr Win recommends investors focus on corporate earnings relative to expectations, particularly in the technology sector, where cloud computing and artificial intelligence remain key growth drivers.

US shares already account for about 60% of global equity portfolios, making careful allocation important as investors reassess their exposure, he noted.

Gold is another asset to watch, supported by continued demand from central banks and institutional investors. Mr Win suggested accumulating the precious metal when prices retreat to around US$3,900-4,000 an ounce, particularly for investors with little or no existing exposure.

Some market forecasts put gold at $4,500-5,000 next year. Over the longer term, gold can help diversify portfolios and reduce volatility. Investors interested in oil, however, should wait for prices to pull back before accumulating, given continuing geopolitical risks, he said.

A STERN TEST

Cryptocurrencies face a separate set of challenges following the US vote, particularly regarding the outlook for regulation and Bitcoin's market cycle.

Gracy Chen, chief executive of Bitget, a global cryptocurrency and digital asset exchange, said historical patterns suggest Bitcoin typically reaches a cyclical bottom within one month after US midterm elections. She expects the cryptocurrency to approach or pass its cyclical low following the latest vote, although the timing remains uncertain.

With Democrats winning control of both chambers of Congress, the prospects for passage of the Trump administration's Clarity Act could weaken.

However, Ms Chen said crypto market sentiment might not be significantly affected because the Securities and Exchange Commission and Commodity Futures Trading Commission could still introduce supportive rules under their existing authority, even though legislation would provide a more durable regulatory framework.

Bitcoin's near-term support level is around $76,000, and holding above that level could help support a recovery, she said.

DEFENSIVE OPPORTUNITIES

Mr Win said the Thai market was shifting towards value and defensive stocks as the economy gradually improves, foreign direct investment grows and overseas investor confidence recovers.

High-dividend Thai shares offer yields of around 5-6%, while property and infrastructure funds and real estate investment trusts could provide yields of 7-9%. Banks, energy, retail and telecom are among the defensive sectors investors could consider, noted K-Asset.

Proposed tax-saving investment measures including the Thailand Individual Savings Account could indirectly support dividend-paying stocks, alongside Thai ESG funds focused on such companies, he said.

For tourism-related stocks, investors should look beyond visitor numbers and focus on tourist quality and average spending per person.

Mr Win recommended maintaining a diversified portfolio across global equities, bonds and alternative assets. Foreign bonds remain attractive to long-term investors because of their yields and income potential, with high-quality foreign debt offering yields of up to 8% before fees.